Robinhood's New Role in the IPO Process Could Have It Earning Fees Like an Investment Bank

Is Robinhood (NASDAQ: HOOD) trying to dethrone Goldman Sachs? Not quite, but it is slowly creeping toward becoming an investment bank for its individual client traders.

2026 is turning into the hottest initial public offering (IPO) year on record for capital raised, and Robinhood wants to turn that into value for its customers. For the first time ever, Robinhood will be an underwriter for an IPO, which will help deliver IPO allocations directly to its customers and generate direct revenue.

Does that make Robinhood stock a buy today?

Underwriting the Oura IPO

Soon, the smart ring and health insights company Oura Ring will go public via an IPO. It is looking to raise $3 billion from investment banks as a part of the IPO process and has chosen 18 banks to work with.

The last bank on the list is a surprise: Robinhood. The brokerage for individual investors is, for the first time, going to underwrite an IPO, meaning Oura will use it to sell stock directly to its Robinhood clients. This differs from Robinhood's previous IPO program for its customers, which simply served as an intermediary connecting clients to IPO allocations.

Now it can sell common stock directly to its customers, which could help it gain a competitive edge over other brokerages. If Robinhood is the best app for securing IPO allocations, it could drive greater customer adoption.

Image source: Getty Images.

Emerging beyond just a brokerage

Robinhood's brokerage business is doing well today. Last quarter, transaction revenue grew 44% year over year to $776 million even as cryptocurrency revenue collapsed. This is due to steady growth from its stock-and-options trading platforms, along with rapid growth from its new events trading platform, which is similar to prediction markets like Polymarket.

In personal finance, Robinhood has moved toward becoming more of a bank, aiming to attract deposits and customers for its credit cards. Its "other" revenue grew 54% to $143 million last quarter, and it now says it has 13 business lines with annualized revenue of $100 million or more. This is much more than just a stock trading platform.

It recently launched a high-fee benefits card called Robinhood Platinum (stealing directly from the American Express brand) that could drive even more payments and subscription revenue. Robinhood's average revenue per user (ARPU) grew 24% year over year last quarter to $187 and has grown by 14% annually since 2020.

HOOD PE Ratio data by YCharts.

Should you buy Robinhood stock?

Right now, Robinhood trades at a market cap of $104 billion, making it one of the largest financial services companies in the world. Its trailing net income is $2 billion, giving the stock a price-to-earnings ratio (P/E) of around 51.

This is expensive for a stock trading platform, let alone a business trying to move into banking services (most banks trade around 10x earnings). Robinhood has shown investors it can grow by expanding into new product categories, such as the Robinhood Platinum card or this recent foray into investment banking to fund IPO shares for its customers. However, much of the future growth associated with these financial services products seems priced into the stock today.

Robinhood's net income grew 48% last quarter to $573 million. Remember, these are bull market earnings, too. Don't expect Robinhood's net income to grow at 48% per year in perpetuity. To reach $10 billion in annual earnings and a valuation that makes sense for a brokerage/banking stock, it will need to grow its net income by 5x. That will take many years even if this current earnings growth rate is upheld. It is likely best to wait to buy Robinhood stock until it reaches a cheaper level.

American Express is an advertising partner of Motley Fool Money. Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends American Express. The Motley Fool has a disclosure policy.