Key Points
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Alcohol consumption has been dropping sharply among younger generations, and that’s a multidecade trend.
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Those same younger adult consumers are more active in financial markets and prediction markets than prior generations, which bodes well for Robinhood.
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Robinhood is delivering exceptional growth across key financial products while boosting trading volume on its platform.
- 10 stocks we like better than Robinhood Markets ›
Diageo (NYSE: DEO) is an alcoholic beverage company that’s seeing a bad time for the industry. Gen Zers and millennials are curbing their drinking habits, and the trend has played out for multiple decades. Alcoholic beverage companies have relied heavily on baby boomers for sales, but as they age, that formula leaves questions about Diageo’s long-term potential.
The company’s stock is down by almost 30% over the past year. The bad performance coincides with a 0.1% revenue decline and 1.7% year-over-year organic sales growth in fiscal 2025, which ended June 30. And in the following quarter, reported next sales fell by 2.2%, while organic sales were flat. These weak results explain why the stock has struggled, and the outlook doesn’t point to a meaningful recovery. In its latest earnings release, management pointed to “a softer U.S. consumer environment than planned for.” That does not bode well for the company’s near future.
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For investors looking to pick stocks that are benefiting from consumer trends rather than losing ground due to them, Robinhood (NASDAQ: HOOD) might be a better option. Gen Z appears more focused than previous generations on investing, prediction markets, and saving money. These three options have varying risk levels, and Robinhood serves them all.
Here’s what else you should know about the fintech stock.
Prediction markets are heating up
Image source: Getty Images.
Although Gen Z isn’t drinking as much, they are the dominant demographic behind the rise of online sports betting. Gen Z and millennials have been chasing speculative assets for some time now in the hopes of striking it rich, and financial institutions have benefited from this trend.
Robinhood doesn’t technically offer sports betting, but it does run a prediction market that includes event contracts for sporting events. The line between sports betting sites and prediction markets is thin — both allow investors to put money on the line and profit if the outcome plays out as they predicted.
Event contracts relating to professional and college football games became available on Robinhood in August. Since that launch, trading volume on Robinhood’s prediction market has surged. Total contracts traded more than doubled sequentially to 2.3 billion in Q3, and speculators traded 2.5 billion contracts in October. This hot segment should continue to experience meaningful demand as more types of event contracts are added.
Investing activity continues to act as a major catalyst
Prediction markets aren’t the only catalyst that is propelling Robinhood’s business and its stock. Transaction-based revenue increased by 129% year over year in Q3, including crypto-related revenue that more than quadrupled year over year.
The pickup in investment activity also comes with higher margin balances. Robinhood told investors in its Q3 press release that its interest income increased by 66% year over year. Lower short-term interest rates offset some of the impact of high balances, but the results still reflected meaningful trading volume increases and highlighted interest as a source of recurring revenue for Robinhood.
So, while Gen Z isn’t drinking as much, more of its members are involved in financial markets. Companies like Robinhood are better positioned for long-term stock gains than alcoholic beverage giants like Diageo.
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool recommends Diageo Plc. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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