Reddit IPO: Investors Are Looking To Sell 22 Million Shares at $31 to $34 Each — Should You Buy?

In an exciting move in the world of finance, social network Reddit is expected to issue its initial public offering with a total valuation of $6.5 billion. The company tried to go public in 2021, confidentially filing for an IPO, according to an article published by Nasdaq.com.

Reuters reported that shares would sell for $31 to $34 each. The IPO launched on Wednesday, Mar. 20, 2024. The company is hoping to raise at least $748 million with the IPO.

Reddit will trade on the New York Stock Exchange as RDDT.

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What Is Reddit?

Reddit is a social media platform divided into roughly 100,000 forums where people discuss everything from Costco’s best products to the best stocks for retail investors. In the last three months of 2023, Reddit had an average of 73.1 million daily active users. Yet, a lack of paid content moderators has scared away many advertisers and Reddit has remained unprofitable since 2005 when it launched.

Meanwhile, Meta Platforms’ Facebook earned nearly $131 billion in advertising in 2023, representing 97.8% of the company’s revenue.

What’s Unusual About the Reddit IPO?

Unlike many other companies, Reddit is allowing retail investors, including Reddit members, members of the company’s board of directors, and friends and family members of employees to gain access to the IPO. The company has reserved 8% of the shares for sale to non-institutional investors.

Typically, IPOs are reserved for partners of the IPO underwriters.

Additionally, if you invest through E-Trade, Fidelity Investments, SoFi or Robinhood, you may be able to snag shares in the IPO.

Pros and Cons of Investing in Reddit’s IPO

Yahoo Finance pointed out that Reddit will show a strong balance sheet after the IPO, with nearly $1.5 billion in cash and equivalents and little-to-no debt or liabilities. Plus, the company posted fewer losses in 2023 than the years prior, which could indicate its profitability issues are turning around. It showed revenue growth of 20% year-over-year in 2023.

However, the company still posted tremendous losses of $91 million last year, or 11 cents for every dollar of revenue. In 2022, it lost more than double that, posting losses of $159 million, or 24 cents for every dollar.

Why Is Reddit Allowing Users and Mods To Invest?

The subreddit r/Theory of Reddit shared the news nearly one month ago that Reddit would be allowing prolific users and mods to invest in the IPO.

“My best guess is that it’s a way to ensure that already prolific users feel invested into the site to make sure they stick around. Or, less charitably, it’s a way to get a full name and identity associated with power users,” user u/mud074 speculated.

Users were required to pre-register, but that, alone, did not guarantee shares or put users under any obligation to participate in the IPO.

While some Redditors seemed notably skeptical about the stock’s profitability due to the lack of revenue, others believe in the platform and its potential. Engineeringold1402 wrote, “Watch the first day; it’ll be more than ‘to the moon’. Then it will correct itself.”

User Ceraexx agreed, “That’s why I wanted to get in at the beginning. It can double, sell the next day or wait a day or two. You can double your money easy.”

WallStreetBets Subreddit and Its Impact on the IPO

One of the Reddit’s most popular forums, r/WallStreetBets, is known for impacting stock market prices. Most notably, in 2021 GameStop stock rose 400% in a week, forcing trading platform Robinhood and others to halt trading on GameStop and other “meme stocks” popularized by WallStreetBets traders.

The popular forum could similarly impact the Reddit IPO. The company noted in its S-1 filing for an IPO with the U.S. Securities and Exchange Commission that retail investors using WallStreetBets could add volatility to the offering for reasons not related to the company’s “underlying business or macroeconomic or industry fundamentals,” Morningstar.com reported.

On the positive side, though, interest from retail investors could cause a substantial first-day pop. Buyers who are fast enough could stand to profit.

Should You Invest in the Reddit IPO?

Looking into the future, Reddit seems to have a lot going for it. The company is looking at other ways to diversify revenue, including a recent deal to use Reddit content to train Google’s AI models. It’s also possible that WallStreetBets’ influence could lead to a pop that lasts longer than a few days.

The Reddit IPO also represents an opportunity to take part in the first social media IPO in several years and one of the first IPOs available to select retail investors.

If being a part of stock market history appeals, this could be an IPO to buy in 2024. Be sure to understand your risk tolerance, however, and realize that IPOs, in general, show significant volatility.

Forbes senior contributor Peter Cohan advised, “If you must invest in Reddit stock, wait until after the company reports its first quarter results.”

This article originally appeared on GOBankingRates.com: Reddit IPO: Investors Are Looking To Sell 22 Million Shares at $31 to $34 Each — Should You Buy?