Reddit IPO: what you need to know

The long-awaited stock market debut of Reddit Inc (NYSE:RDDT) is expected to take place this week in a move that investors hope will boost the outlook for other new offerings over the rest of this year.

The early signs are encouraging after Reuters reported that the initial public offering (IPO) of shares by the loss-making social media platform is four-to-five times oversubscribed.

• Invest with ii: Open an ISA | Buying US Shares in UK ISA | Transfer a Stocks & Shares ISA

Trading is scheduled to get under way in New York within days, with California-based Reddit seeking a $6.5 billion (£5.1 billion) valuation based on a target range for shares of between $31-$34.

The projected valuation is $2 billion below the one given to Birkenstock Holding (NYSE:BIRK) last October, when the German footwear company completed Wall Street’s third largest listing of last year.

Cambridge-based chip designer ARM Holdings ADR (NASDAQ:ARM) was the largest, with both companies experiencing mixed fortunes early on before Arm doubled its value on the back of a surge for US technology valuations.

Reddit, which first signalled its intention to float in 2021, will be the latest test of IPO appetite ahead of potential listings that could include the company behind the 250-year-old Encyclopaedia Britannica and the Merriam-Webster dictionary.

Bloomberg reported yesterday that Chicago-based Encyclopedia Britannica Inc is seeking a $1 billion valuation from a New York listing that may take place as soon as June.

The outlook for lower US interest rates has helped boost the IPO pipeline, as has an acceptance by selling shareholders they need to scale back expectations from earlier funding rounds.

That’s the case for Reddit, which was valued at $10 billion prior to filing its draft registration statement with the US Securities and Exchange Commission (SEC) at the end of 2021.

That was the same year Reddit hit the headlines for the “meme-stock” saga, when collaboration by retail investors on the “wallstreetbets” forum led to the buying of highly shorted companies such as video game retailer GameStop Corp Class A (NYSE:GME). 

• Will ‘Electric Eleven’ stocks outshine the Magnificent Seven?
• Pros name five UK shares Warren Buffett might put in his ISA
• Nvidia and Scottish Mortgage made me an ISA millionaire, but now I back these funds too

Reddit has about 100,000 online forums, called subreddits and which allow conversations on a broad range of topics.

Co-founder and chief executive Steve Huffman said in the company's latest SEC filing: “I think of August 13, 2005 as the day Reddit really came to life. We had been online for a couple of months, but until then there had never been enough posts from users on any day to fill the front page.

“That morning, to my surprise, I opened Reddit to discover the home page was overflowing with posts from real users for the first time. Reddit has been teeming with activity ever since. More than 76 million people, on average, visited every day in December 2023.

“They come to Reddit to participate in a vibrant community, a constantly evolving place where anyone, anywhere, can connect with like-minded people and dive into any topic.”

Unlike other social media ventures such as Facebook owner Meta Platforms Inc Class A (NASDAQ:META), the company has lost money every year since 2005 and is still “in the early stages of monetizing our business”.

• ISA Inspiration: practical tips for your portfolio
• Insider: backing the chip boom and an ex-FTSE 100 stock

Its latest filings showed Reddit generated revenues of just over $800 million in 2023, an increase of 21% for a narrower net loss of $90.8 million (£71.5 million). Its key metric of average revenues per user metric fell to $3.42 in the fourth quarter, down 2% again a year earlier and split between $5.51 in the United States and $1.34 for the Rest of World.

However, the company recently boosted its prospects by expanding its partnership with Google, making it easier to discover and access the conversations people are looking for on Reddit.

The platform, which relies on volunteers from its user base to moderate the content posted on its forums, has reserved about 8% of its IPO shares for eligible users and moderators, as well as board members and friends and family members of its employees and directors.

These buyers will not be under a lock-up period, meaning they could choose to sell their shares on the first day of trading.

Your guide to buying Reddit shares with ii

Early investment in Reddit is not available to UK retail investors but you will be able to buy shares through ii on the first day they start trading. 

Here are the steps you can take in advance to be ready for day 1:

1.    Open an account

You will be able to hold shares in our Trading Account, SIPP, ISA and Junior ISA.

• How to get started with US investing

2.    Complete the exchange agreements

You need to complete this form before you make your first international trade. We will prompt you to complete the agreements the first time you search for an international share price.

• US & international share dealing

3.    Complete a United States dealing (W-8) form

Before you can buy US-listed shares you need to have completed a W-8 form. You can do this online by logging in and visiting our Useful Forms page. You don't need to do this if you are only investing in a SIPP.

• Foreign exchange

On the day shares are admitted there will likely be an initial period of price stabilisation, after which trading commences. This may only be a few minutes but can take a few hours.