The Reddit IPO: What to Know

If you’ve ever tried to crowdsource an answer to an obscure question or find cool stuff to do in a random city, you’re probably familiar with Reddit. The internet forum may feel reminiscent of a ‘90’s chatroom, but the site has a strong internet presence, an influential base of users (GameStop, ever heard of it?), and now, a path to becoming a public company.

In Dec. 2021, Reddit announced it had confidentially filed its IPO paperwork with the Securities and Exchange Commission (SEC), but it held off on actually going public^[0]. Now, Reuters is reporting the social network is planning to file publicly in late February and complete its IPO soon after. Reddit has even picked its future home: The New York Stock Exchange^[0].

If you want to be ready to buy Reddit stock once it hits the market, here’s what you need to know.

Once Reddit has gone public, you’ll be able to buy Reddit stock. If you want to invest in Reddit as an individual stock when it becomes available, you’ll need an investment account. Investment accounts, or brokerage accounts, are not investments themselves — they simply house the money you use to buy investments, and your actual investments once you purchase them. There are several types of investment accounts, and it’s worth investigating which type is best for you since some offer tax advantages.

Once you open an investment account and add money to it — and Reddit goes public — you’ll be able to buy the stock. That being said, some brokers do offer access to IPO shares before they’re more widely available, but they may have mandatory investor assessments, account minimums or trade minimums.

While Reddit serves a slightly different function in a different format than its competitors (think more question-and-answer and in-depth discussion than Instagram pics and platitudes), the company is still entering a ring that already has a few heavyweight champs in it.

With competition such as Meta, TikTok and Pinterest, it may be difficult for Reddit to hold its own. Plus, sources from inside Reddit told Bloomberg that the company has yet to turn a full-year profit^[0]. Reddit relies on two main income streams: Advertising revenue, and a paid plan called Reddit Premium lets users pay $5.99 per month to avoid that advertising. Both sources of revenue were met with protest from Reddit users when they were introduced.

When purchasing any stock you’ll want to consider the company’s fundamentals, such as its revenue, net income and earnings per share. When looking into a company that is new to the public sphere, such as Reddit, it can be difficult to find that information since private companies don’t have to produce regular reports. Once Reddit becomes public, that information will be more readily available because the company will be required by the SEC to provide regular financial updates.

No one will know how much a share of Reddit stock will cost until its IPO price is announced, and even then, the market will have its say about the company’s value. But like any large or significant purchase, it’s a good idea to know how much you feel comfortable spending before you hit “buy.”

A good rule of thumb is to not invest more than 5% to 10% of your overall investment portfolio (that includes all your investment accounts, such as a 401(k), an IRA and any traditional brokerage accounts) in individual stocks. For easy math, that means if you have $100 to invest, you may only want between $5 and $10 to be allocated to individual stocks such as Reddit.

The rest of your account could be made up of funds, such as index funds. Funds offer instant diversification for your portfolio since they invest in lots of companies at once. That way, if one company performs poorly, your overall portfolio is bolstered by the performance of the other companies.

Once Reddit IPOs and is a publicly-traded company, you can decide how much you want to spend on its stock. If you open an investment account with a broker that offers fractional shares, you’ll be able to pay for your stock in a dollar amount rather than a share amount. That means if the price per share is more than you want to spend, you can purchase a fraction of a share rather than a full share.