Reddit Is Going Public: Here's What Investors Need to Know

Investors are eagerly awaiting more information about Reddit's upcoming initial public offering (IPO), which is expected to take place later this year. The company filed its initial IPO paperwork with the Securities and Exchange Commission last month. In this segment of Backstage Pass, recorded on Dec. 17, 2021, Fool contributors Toby Bordelon, Jason Hall, and Rachel Warren discuss. 

Toby Bordelon: Reddit. We know Reddit right? It's a social media company, more of a message board platform. A community it is.

Jason Hall: It's called the front page of the internet, right?

Bordelon: Yeah and that's basically what it is, right? That's a very good description. They filed to go public. They filed I think the day they announced it. I don't know when the filing was today or yesterday.

Hall: They dropped that after-hours last night.

Bordelon: Yes. OK. They filed to go public. We don't have any details, it's a confidential filing so you don't have the public S-1 yet. That will come soon, assuming they continue to go forward with the process. I think it's going to be a highly popular offer that would be my guess. Hey, this could become a meme stock, right? Reddit is, where meme stocks start.

Hall: Where meme stocks live, where they are born.

Rachel Warren: How could it not be yeah. [laughs]

Bordelon: This is where WallStreetBets, this is where stocks go to get memed. Will Reddit get memed? I don't know, we'll see but here's the question. One let's get an easy question. Are you a buyer of Reddit when it IPOs? So let's think about that and then what's one currently private company that you'd love to buy if it also decided to go public in the next year?

Not The Motley Fool, right? We all know, yes, we'd all buy shares of this great company that Tom Gardner runs so expertly, with his incredible executive team, but leave that aside. Some company besides The Fool. Let's start with you Rachel.

Warren: Yeah, this was so interesting to me because it's funny. I can't remember if it was an article I was writing a few months ago and I remember for some reason I thought Reddit was publicly traded and I looked it up and I was, wait, this company isn't public.

This seems like the perfect company to be moving around in the market, especially with the types of stocks that we see being really popular with some retail investors right now. I honestly, I might be interested in buying the stock. I'd have to see the financials first. There's obviously a lot of unknowns. We know that Reddit primarily generates its revenue through advertising.

Not a new model by any means and it has an ad-free premium membership plan as well. So I'd be very interested to see what are the margins like on that for them specifically but this fascinates me. 

And I think Reddit has become the go-to place for people from all over the world to connect on any subject, whether it's some niche topic that no one's ever heard of, to getting to know people in your community, to all the bands of retail investors that have found each other through this investing meme craze to retail investors that have kind of united against Wall Street and driven all these crazy trends in the market that we've seen this year. Reddit is the place to go.

I know for me when I've been having questions about visiting, for example, a particular country on my travels. I'd go to Reddit and I will see what are the posts from people in the community and other digital nomads that have posted questions there.

The digital nomad Reddit thread has been like my go-to place for years. I am a user myself. There are very few platforms I can think of where you can find any group that might align with your interests and connect to people no matter where in the world you are. Yes, you have Facebook.

Yes, you have Twitter but this is a different animal. I honestly think that you could see a little bit of competition against some of these bigger tech players if Reddit successfully enters the market as a publicly traded entity. I'm excited to see how its financials look. I think that it'll be very interesting to see if this is a profitable business model.

I think it could easily become a meme stock, but I can also very much see this being a stock that actually has some staying power so, hard to say at the minute, but I am interested in this one and I really want to see what else comes out in the months ahead.

In terms of a company I would be interested in buying if it went public. I'm pretty sure this would never happen but one company, I thought of was IKEA. The company has been around since the '50s, started out as a mail order catalog company and now it's the world's largest furniture retailer with hundreds of locations globally.

It's interesting. The group that contains the IKEA franchises, it actually reports some financial results and they already reported their results for fiscal 2021 and revenue was 25.6 billion euros up year over year even though the bottom line was down from shortages and supply chain constraints.

This is like a very fast-growing company with a lot of revenue but I think it's very unlikely the company would go public.

We know it has a very diverse business model. It's interesting because it's run, by at the top of the various structures of companies that run IKEA. It's this Netherlands-based foundation that has a lot of control by the family of the guy who started it.