Robinhood Just Won Approval to Underwrite IPOs, Right Before SpaceX's Blockbuster Market Debut. Here's Why the Timing Matters.

Robinhood (NASDAQ: HOOD) had no shortage of news this week. The online brokerage reported strong May operating data, and a securities filing revealed a large insider stock purchase. But the announcement with arguably the biggest long-term implications came from CEO Vlad Tenev, who said Tuesday in a post on X that Robinhood Securities is now approved to serve as an underwriter of initial public offerings (IPOs).

"We intend to be disruptive in this space," Tenev wrote.

The news is timely. SpaceX is expected to begin trading on the Nasdaq on Friday in what could be the largest IPO in history, and a long list of big private companies may follow it to the public markets in the coming years. Here's a closer look at the new business line -- and why its timing could prove important.

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From distributing IPO shares to originating them

Until this week, Robinhood's role in public offerings was distribution. The company's IPO Access product, launched in 2021, lets customers buy shares of select offerings at the IPO price before they start trading. But the shares available through IPO Access are allocated by the investment banks running the deal; Robinhood has participated as what's known as a selling group member.

Underwriting is a different business. Underwriters work directly with the company going public, helping set the offering's price and place its shares with investors. And the issuer pays fees for that work.

It turns out that Robinhood is well-positioned to underwrite, given its significant scale.

The company ended May with 27.7 million funded customers -- up about 1.76 million from a year earlier. A pool of retail demand of that size may be hard for a company going public to ignore.

"Since IPO Access launched in 2021, we've watched retail go from an afterthought to a key part of how companies plan an IPO," Tenev said in the same post.

He may have a point. SpaceX is set to debut at a fixed offering price of $135 per share, in a deal that could raise about $75 billion and reportedly values the rocket and satellite internet company at around $1.75 trillion. And the company has reportedly weighed allocating as much as 30% of the offering to retail investors -- well above what's typical for a large IPO. Though reports began circling on Thursday afternoon that the company cut its retail IPO allocation to a low 20% range -- still a notable allocation, however.

Momentum is strong -- and so is the valuation

But the new approval isn't the only reason investors have been paying attention to the stock recently. Robinhood's total platform assets ended May at $377 billion, up 48% year over year, and net deposits during the month were $5.6 billion. Equity trading volumes of $315 billion rose 75% year over year.

In addition, a securities filing this week showed director Meyer Malka bought about $20.2 million of Robinhood stock on June 5 through an investment fund he's associated with.

Of course, not everything has gone the company's way this year. Robinhood's cryptocurrency revenue was a key weak spot, dropping 47% year over year in the first quarter of 2026. Total revenue still rose 15% during the quarter, but earnings per share grew just 3%.

And despite shares sitting about 40% below their October high, even after rising this week, the stock still trades at about 44 times earnings as of this writing. For a company growing earnings at the pace Robinhood posted last quarter, that's a premium price.

So, what does the underwriting approval mean for the company and the stock against this backdrop?

I think it's the development with meaningful long-term earnings significance -- and one that will help reduce some of the company's dependence on trading activity. After all, underwriting fees are paid by issuers deal by deal, so the revenue wouldn't hinge on how actively customers happen to be trading in a given month -- a welcome trait for a business still exposed to crypto's swings. And with companies like SpaceX testing just how big retail allocations can get, Robinhood may be entering the business at an opportune moment.

Still, the company hasn't underwritten a deal yet, and the established investment banks that dominate underwriting today won't step aside easily. Investors with a long time horizon may be comfortable paying up for that potential. For everyone else, watching how Robinhood's first underwriting assignments play out may be the more prudent move.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.