If you're looking to invest in Reddit (RDDT +6.88%) stock, there's good news. The stock is now public after its March 2024 initial public offering (IPO), allowing anyone to buy it.
New IPOs often attract attention on Wall Street, and Reddit is no different -- especially since its debut comes at a time when the IPO window has largely closed following the tech bear market in 2022.
NYSE: RDDT
Key Data Points
However, Reddit is a unique property in the social media sector, as users operate entirely anonymously and post in forums known as subreddits where topics and comments appear in threads.
Reddit also believes it is a valuable asset in the age of artificial intelligence (AI), since its content can be used for training large language models.
If you're interested in buying Reddit stock, keep reading below. We'll discuss the steps to take to buy it, whether it's a good idea to invest in it, and other key details about the stock, such as whether it's profitable.
How to buy Reddit stock
- Open your brokerage app: Log into your brokerage account where you handle your investments.
- Search for the stock: Enter the ticker or company name into the search bar to bring up the stock's trading page.
- Decide how many shares to buy: Consider your investment goals and how much of your portfolio you want to allocate to this stock.
- Select order type: Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay.
- Submit your order: Confirm the details and submit your buy order.
- Review your purchase: Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly.
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Should I invest in Reddit stock?
Whether you should invest in Reddit stock will depend in part on personal characteristics such as your risk tolerance. IPO stocks like Reddit tend to be volatile, so any Reddit investor should be prepared for significant swings.
Reddit has pitched itself partly as a play on the artificial intelligence (AI) boom, and companies like OpenAI are already using Reddit's content to train large language models and other AI algorithms. In CEO Steve Huffman's prospectus letter, he said, "We expect our data advantage and intellectual property to continue to be a key element in the training of future LLMs."
Most of Reddit's revenue currently comes from advertising, a business model that has worked well for larger social media companies like Meta Platforms (META +0.64%). However, the company also envisions expanding further into commerce, since users have developed marketplaces in areas like selling watches, commissioning art, and requesting photo edits.
Reddit stock soared in its first year as a public company, delivering blowout growth with revenue up 62% to $1.3 billion. The company also reported a generally accepted accounting principles (GAAP) net income of $71 million in the fourth quarter.
Reddit's a unique company, and the stock could pay off for long-term investors, especially if its ambitions in data licensing with AI and e-commerce pay off, but it carries a significant level of risk, given its valuation and its relative new arrival to the public markets.
Is Reddit profitable?
As of the third and fourth quarters of 2024, Reddit was profitable on a GAAP basis, though it wasn't profitable for the full year. It still hasn't been profitable for a full year in its 20-year history.
The company has not yet given guidance for the full year of 2025, but it seems likely to generate a full-year profit after reporting a $29.9 million net income in the third quarter of 2024 and $71 million in the fourth quarter.
Reddit also benefits from high gross margins, showing that the core business is highly efficient. In 2024, it reported a 90.5% gross margin, which should help the company expand profit margins as it grows.
Historically, social media companies are most profitable during the fourth quarter, when advertising demand rises because of the holiday season, and Reddit benefits from that pattern as well.
Does Reddit pay a dividend?
Reddit doesn't currently pay a dividend and is unlikely to pay one for the foreseeable future. Dividend-paying companies generally need to be consistently profitable. To pay a dividend, companies must use profits or cash on hand. In its 2024 annual report, the company said it does not intend to pay dividends any time soon.
Growth stocks like Reddit also don't typically pay a dividend until they reach a certain level of maturity. Facebook parent Meta Platforms, for example, just declared its first dividend in early 2024.
Investors shouldn't expect Reddit to pay a dividend for at least several years.
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Will Reddit stock split?
Reddit stock is unlikely to split anytime soon. Stock splits typically occur after a company's share price has run up substantially, and that typically takes several years.
During the dot-com boom, stock splits for new issues were common as prices raced higher, but it has been rare to see IPO stocks split since that era.
It's possible that Reddit's stock will eventually split, but investors shouldn't expect a split for years. From its current price of $150, the stock would likely have to at least triple before a stock split would be considered.
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The bottom line on Reddit stock
IPOs tend to excite investors, and Reddit is a unique company. While it is a social media platform, it functions differently from its peers, and the company's utility for training AI models also separates it from other social media platforms.
For Reddit stock to be successful, the company will have to continue to grow its profits, though its early results have been promising.
If it can grow its profits and capture the opportunity in front of it in AI and beyond, the stock should be a winner, but it faces a number of risks and challenges on the way to that goal.
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