Reddit IPO: What To Know Ahead Of March's Planned Launch (2024)

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Reddit IPO rumors have been swirling for years, but an exclusive report says the controversial online community will finally go public in 2024.

Will you invest in the Reddit IPO? Get ready to make an informed decision with this quick guide to Reddit. Read on to learn the company history, key stats and revenue sources. I'll also cover how to buy into the IPO and the key challenges and opportunities Reddit may face as a public company.

What Is Reddit?

Web data company SimilarWeb ranks Reddit as the world's 16th most popular website. For context, Amazon AMZN is Number 12 on the same list, Netflix NFLX is 21 and Pinterest (PINS) is 32.

Reddit is a social media platform, online community and news aggregator. The site is organized into subreddits, which are forums dedicated to specific topics. Registered users—called Redditors— with some history on the platform can create subreddits. Redditors can also post content, links, images, questions, comments and answers.

Reddit relies on Redditor votes to decide which content appears more prominently. This is a differentiator from other social media platforms that use internal algorithms to organize content.

The two voting options for Redditors are upvote and downvote. Upvotes promote content so it displays higher on the page. Enough upvotes can even push content to the site's homepage. Downvotes demote content so it's less visible.

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Reddit's Journey To IPO

College roommates Steve Huffman and Alexis Ohanian founded Reddit in June 2005. Huffman wrote the code, and the launch was supported with funding from startup incubator Y Combinator.

In 2006, Huffman and Ohanian sold Reddit to global media company Condé Nast. The sales price was rumored to be between $10 million and $20 million. The cofounders remained on the leadership team for three years before separating from the company in 2009. Huffman returned as CEO in 2015 and remains in that role today.

Reddit Controversies

Over the years, Reddit has generated its share of controversies. Three that stand out are the meme stock movement, Huffman's hands-off moderation approach and the company's elimination of free API access in 2023.

Meme stock movement. The meme stock movement largely originated in a subreddit called Wallstreetbets. The forum had nearly 2 million members at the time, organized around the goal of identifying and promoting good stocks.

In 2021, Wallstreetbets latched onto video game retailer Gamestop (GME), which was heavily shorted by hedge funds. Redditors rallied behind a plan to inflate the GME stock price, with the goal of forcing hedge funds to cover their short positions. The plan worked.

In January 2021, GME went from below $5 per share to above $120 per share. Today, GME trades for about $14 per share. All prices noted are adjusted for a 2022 stock split.

Since GME, Wallstreetbets and other online groups have thrown support behind more downtrodden companies, including movie theater chain AMC, software company Blackberry and fintech Sofi.

Hands-off moderation. In the name of protecting free speech, Reddit committed to a hands-off moderation style early on. Redditors were rarely banned or silenced for sharing their views, no matter how extreme.

When pressed on this issue in 2018, CEO Huffman said that Reddit's rules do not prohibit racism or racist speech. His stance was that Reddit would discipline actions, but not beliefs. Unfortunately, that distinction became blurred when Redditors used the platform to organize a white supremacist rally that resulted in one death.

Reddit did take a harder line on hate speech in 2020. The platform published more restrictive policies and began shuttering subreddits that promoted hateful content.

API fee change. In 2023, Reddit announced it would start charging fees for the use of its API. An API is a code-based connector that developers use to build integrated applications. In Reddit's case, third-party accessibility applications and moderation tools had been using the API for free.

The change sparked anger in the Reddit community when one developer said the fee change would force the shutdown of his popular app, Apollo for Reddit. In response, thousands of subreddits organized a temporary "blackout" to protest. Participating moderators switched their subreddits to private mode, closing off content access to outsiders.

Reddit Key Stats

Reddit has not yet released its financial data officially. A Bloomberg News article shares some numbers from an unnamed source, which include:

2023 revenue: exceeding $800 million
2022 revenue: $666 million
Adjusted earnings before interest, taxes, depreciation and amortization: -$69 million
Possible valuation in an IPO: $5 billion or more

Confirmed facts about Reddit include:

Launch date: 2005
Home base: San Francisco, California
Daily active unique users: 70 million
Active communities: 100,000
Number of posts and comments: 16 billion

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How Does Reddit Make Money?

Reddit generates revenue from selling ads on its platform, charging members for premium memberships and charging developers who use its API.

Advertising

Reddit, like Facebook and Google GOOG , runs an auction-based advertising system. This means marketers bid against other advertisers to show ads to a particular audience. The audience is targeted by interests, communities and keywords. Ads can take the form of promoted posts, videos, subreddit takeovers and more.

Premium Memberships

Redditors who upgrade to a premium membership at Reddit.com pay $5.99 monthly or $49.99 annually for an ad-free experience plus a few other perks. Higher rates apply to those who upgrade on Reddit's app, which is Reddit's way of offsetting fees charged by the app stores.

Premium perks include avatar upgrades, access to a members lounge and the ability to customize the Reddit app icon.

API Charges

Reddit charges $0.24 for every 1,000 calls made to the Reddit API. Accessibility applications reportedly are exempt from API fees.

Apollo founder Christian Selig estimated in 2023 that Reddit's API charges would have cost Apollo $20 million annually.

When Is Reddit's IPO Date?

The Reddit IPO date has not yet been announced. According to Reuters, the company is targeting a public filing in late-February, followed by the IPO in March.

For more upcoming IPO opportunities, see this list of 2024 IPOs To watch.

How To Buy Into Reddit's IPO

Once Reddit files publicly for its IPO, the exact timeline and opportunity for investors will materialize.

At this point, we can assume institutional investors will get the shares they want first. Some individual investors may get what's left if their broker allows it. Brokers that provide early IPO access to individuals will enforce some qualifications, such as a minimum asset balance with the firm.

Without early access, you must wait until the stock is publicly available. When that happens, you can place a buy order in your brokerage account.

There are a few steps to complete before doing that, however. These include researching the financial data when it becomes available, learning about Reddit's business model, evaluating how the stock fits into your investment strategy and deciding how much of the stock to buy.

Researching the financial data: Once Reddit releases its financial statements, you'll want to review the history of sales growth, margins and profitability (or lack thereof). You'll also want to evaluate the balance sheet and how the company has been managing its capital.
Learning Reddit's business model: Reddit is an advertising-supported social media company like TikTok, Pinterest and Meta Platforms' Facebook and Instagram. This is a competitive space. For Reddit to be investable at this early stage, the company should have obvious competitive advantages and a clear path to profitability.
Evaluating how the stock fits into your investment strategy: Hopefully you are following an asset allocation strategy to keep your risk in check over time. An IPO stock often falls into the "speculation" bucket. Look at your portfolio today and decide if a Reddit position aligns with your overall strategy.
Deciding how much stock to buy: If your allocation strategy does support a stake in Reddit, then crunch numbers to determine how much you feel comfortable buying.

Challenges And Opportunities To Consider

IPOs are challenging as investments. These companies have minimal recorded histories to evaluate and no analyst coverage. Plus, IPO stocks can be subject to emotional buying that drives their valuation way up in the early days of trading. Then, the dust settles, investors move on and the stock price drops.

Reddit faces these general obstacles, and then some. Circ*mstances investors should consider before participating in Reddit's IPO are the company's history of controversy, a seemingly unproven business model and the competitive landscape of online advertising.

History of controversy: Reputation matters, especially for companies that sell advertising. Another hate speech controversy, for example, could send Reddit advertisers off to competitors.
Unproven business model: Reddit has nearly 20 years of operation under its belt. Even so, if the rumored financial data are accurate, the company is not profitable. Public companies can and do survive without profits, but only temporarily. Investors will eventually demand Reddit prove it can return value to shareholders.
Competition: Reddit competes with Google, Facebook, Pinterest and TikTok for advertising dollars and user attention. These are formidable, deep-pocketed competitors that can threaten Reddit's ability to scale.

The key to shaking off that competition lies in Reddit's loyal community of Redditors. Collectively, Redditors are a passionate, engaged bunch. They do far more than scroll and tap—they seek information, dive into conversations, share knowledge and, sometimes, tackle big issues.

There's opportunity in the uniqueness of Reddit's user base, for the company and its shareholders. Reddit's charge is to prove it can leverage that uniqueness to create profitable growth going forward.

Bottom Line

All IPOs are risky investments and Reddit is no different. Do your research to decide if committing to Reddit shares makes sense for you and your investing goals.