Robinhood Markets Inc. faces a new legal challenge from the state of Wisconsin, which has filed a lawsuit against the brokerage and several competitors over contracts tied to sports events. The suit, which also names Kalshi, Coinbase, Polymarket, and Crypto.com, alleges that these so-called prediction markets constitute illegal sports betting under state law. The legal action arrives just days before Robinhood is set to release its first-quarter earnings results on Tuesday, adding a layer of regulatory uncertainty to what is typically a closely watched report.
Robinhood's shares closed at $84.71 on Friday, down from $91.28 at the start of the week, according to LSEG data. The company has pushed back against the allegations, telling Wisconsin Public Radio that its event contracts fall under the oversight of the U.S. Commodity Futures Trading Commission (CFTC) and that it plans to vigorously defend itself in court. The timing of the lawsuit could not be more critical, as investors are eager to hear from CEO Vlad Tenev and CFO Shiv Verma during the earnings call scheduled for 5 p.m. EDT on Tuesday.
Earnings Expectations and Investor Concerns
Robinhood's fourth-quarter results, released in February, fell short of Wall Street's revenue targets, largely due to weaker-than-expected crypto trading revenue. While revenue from equities and options ticked higher, the miss raised questions about the company's ability to diversify beyond its core stock and options trading business. Investors are now looking for evidence that Robinhood's push into event contracts, cryptocurrency, retirement products, margin lending, and private-market access can meaningfully contribute to growth. The Wisconsin lawsuit threatens to complicate that narrative, particularly if state-level challenges to event contracts gain traction.
Analyst sentiment is mixed. JPMorgan maintained a Neutral rating on Robinhood shares as of April 23, trimming its price target to $92 from $113. The average price target from JPMorgan, KeyBanc, and Cantor Fitzgerald now stands at $104, according to Benzinga data. The stock's recent decline reflects the uncertainty surrounding the legal and regulatory environment, as well as broader market dynamics.
Regulatory Battles on Multiple Fronts
Wisconsin's lawsuit is not the only regulatory headache for Robinhood and its peers. On Friday, the CFTC filed a separate lawsuit against New York, arguing that the state has overstepped its authority by targeting Coinbase and Gemini over their prediction market offerings. New York regulators counter that state gambling laws apply when platforms sell event contracts tied to sports outcomes and similar wagers. This federal-state conflict underscores the murky legal landscape for prediction markets, which have grown in popularity as a way for traders to bet on real-world events.
Robinhood has emphasized that its event contracts are regulated by the CFTC, a position that may offer some legal cover but does not guarantee immunity from state actions. The outcome of these cases could have significant implications for the broader industry, potentially limiting the growth of a product line that Robinhood has been actively promoting.
Tailwinds and International Expansion
Despite the legal headwinds, Robinhood has benefited from several positive developments. Earlier this month, the Securities and Exchange Commission approved a FINRA proposal to eliminate the pattern day-trader rule, which had restricted accounts under $25,000 to just three day trades per five business days. Shares of Robinhood and Webull climbed on the news. Northland analyst Mike Grondahl called the change a "direct benefit" for revenue, as increased day trading activity should translate into more orders and higher transaction volumes.
Robinhood also made strides in its international expansion. Last week, the company received in-principle approval from the Monetary Authority of Singapore to offer brokerage services in the city-state. Patrick Chan, head of Robinhood's Asia operations, described Singapore as an "ideal hub" for the company's growth. The approval could eventually cover securities trading, exchange-traded derivatives, custody, product financing, and funds, though Robinhood stressed that it does not yet constitute a full license.
In addition, Robinhood's Ventures Fund I disclosed a roughly $75 million purchase of OpenAI common shares on April 17, providing retail clients with a rare opportunity to invest in a high-profile AI company that remains privately held. The news sent Robinhood shares higher, with Piper Sandler analysts noting that retail trading could hold up better than expected in 2026, regardless of interest rate moves or broader market rallies.
What to Watch on Tuesday
With earnings due after the bell, investors will be focused on key metrics such as funded customers, net deposits, margin balances, options activity, and crypto trading volumes. Management's commentary on the Wisconsin lawsuit and the future of event contracts will also be closely scrutinized. The market is looking for evidence that Robinhood's product innovations can offset regulatory risks and reignite growth. Tuesday's call will ultimately come down to the numbers—everything else is just narrative.
