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Trading Guide

Trading and Social Media: A Look At Reddit IPO

Pepperstone
Market Analyst
12 Mar 2024
Reddit's transition to a public company through its IPO is not just a significant milestone for the company, but for the social media landscape as a whole. You can find the latest information about their IPO filing on the SEC website.

The impact of Reddit's share sale on the stock market

As a social media company with a vast user base, Reddit's share sale is anticipated to attract considerable attention from institutional and individual investors alike. The public offering represents an opportunity for the company to capitalise on its platform's success.

The valuation of Reddit will be a subject of intense scrutiny, as investors try to determine the company's worth based on its user engagement, revenue streams, and growth potential.

How Retail Traders Might Influence Reddit's IPO

Retail Investors

Retail investors, a growing force in the market, have demonstrably moved markets before, as seen in the GameStop frenzy fueled by the r/WallStreetBets subreddit. When it comes to Reddit's own IPO, retail investors could have a significant impact, particularly due to the company's reported plan to offer pre-IPO access to some of its top users. This pre-IPO allocation, typically reserved for institutional investors, could significantly influence the stock price depending on whether these users hold or sell their shares after listing.

The Power of Active Communities

The active communities within Reddit, recently highlighted by the platform's blackout protesting content moderation policies, could serve as a double-edged sword for the stock price. These communities are known for being passionate and vocal, particularly when it comes to activism.

This characteristic presents a unique situation. On one hand, these communities could rally behind the company, boosting the stock through widespread retail investment. On the other hand, their strong voices could also amplify critiques of the company, potentially influencing the stock price negatively. The sentiment within these communities will be a crucial factor to watch following Reddit's IPO.

Preview

Trading Reddit: Insights and considerations

When considering trading Reddit following its IPO, insights and considerations should be taken into account.

  • Traders need to understand the company's business model and revenue sources. Advertising revenue plays a significant role, reportedly accounting for around 98% of total revenue in 2023. Other revenue sources, including premium membership, accounts for 2% of total revenue in 2023. Revenue is up 21% from 2022.

Source: latest information about their IPO filing

  • The sentiment of Reddit's user base could impact the stock price. Traders should monitor the mood within the platform's active communities, as Reddit users have shown they can drive significant attention to specific issues or stocks.
  • Traders should consider macroeconomic factors, competitive pressures, and regulatory changes, such as the ongoing antitrust lawsuit against Meta (formerly Facebook) by the FTC. This lawsuit, which alleges that Meta stifled competition by acquiring Instagram and WhatsApp, could result in a breakup of the company, impacting its future growth and financial performance.

Predictions for Reddit's future after the IPO

The Reddit IPO will be an interesting event for the US market, as new listings continue to grow in number, albeit with the social media firm's IPO likely to take place at a value which is around half that at which funds were raised in 2021.

Naturally, the IPO shan't be without its risks, particularly with RDDT set to float a relatively low number of shares, and having warned in its prospectus that it "may never achieve profitability". Hence, it is likely to trade as a relatively high-beta name, with the added difficulty of having to overcome apparent disapproval of the IPO from its own user base, whose vociferous nature & market-moving ability became only too clear to all during the 'meme stock' era of 2021.



Conclusion

Reddit's journey from a simple online forum to a powerful social media company is a testament to the impact of community-driven platforms in the digital age. For traders, Reddit's IPO presents both opportunities and challenges. Staying informed about the company's strategies, monitoring the platform's community sentiment, and keeping an eye on the wider market trends are essential practices for anyone looking to trade Reddit's stock.

Remember, as Reddit takes this significant step, the broader implications for the tech industry and the stock market will be unfolding. Stay in the know, for the outcome of this event may have a big impact in the future of trading and social media for years to come.

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