How to Invest in Rippling Stock Pre-IPO

Rippling is a cloud-based enterprise software company, and it's taking the small and medium-sized business world by storm. It was only founded in 2016, but it's already soared to a $11.25 billion valuation. With this exponential growth, people understandably want to know how to invest in the company.

Rippling is solving an interesting combination of problems. The company's software handles three main tasks: Payroll, human resources (HR), and information technology (IT).

With one facet of Rippling's business, companies can onboard and train new employees with its HR software solutions, as well as manage their benefit plans. Companies can also set up devices and grant access to apps through its IT solutions. And finally, Rippling's customers can log hours and pay their workers accordingly.

There are other enterprise software options out there. But most only solve for one or two of these business needs. Rippling handles all three, and that might be why it's gaining traction so fast.

Rippling could also be gaining traction because of how sleek it is. The company's software is cloud-based, and it can be managed through its mobile app. It provides many automation features so that tasks can be performed without taking up time from managers. It's also fast and easy to use, with Rippling claiming that new employees can be onboarded in just 90 seconds.

Finally, Rippling integrates with major enterprise apps, including Slack from Salesforce (CRM 0.42%), Zoom Video Communications (ZM 1.57%), and Asana (ASAN 3.15%). This means that companies can add Rippling while still keeping various other enterprise products that they're already using.

Having briefly looked at the business, Rippling can now be examined as a potential investment.

Is it a public company?

Is Rippling publicly traded?

There aren't shares of Rippling stock available for trading on exchanges like the New York Stock Exchange or the Nasdaq. This is because it's still a privately held company -- it hasn't gone public as of October 2023.

Privately-held companies like Rippling customarily go public through an initial public offering (IPO). This is an event in which shares are offered to retail investors for the first time.

Rippling may choose to go public for multiple reasons. However, companies often choose to go public to raise money to grow the business, raise brand awareness, provide a way for private investors to cash out, and have more liquidity options in the future.

For now, non-accredited investors will simply have to wait to invest directly in Rippling stock.

When will it go public?

When will Rippling IPO?

Rippling hasn't announced an IPO yet, so it's not on the IPO calendar, and there's no way to be sure of how long it might take for Rippling to go public.

Typically, companies choose to wait until they reach sufficient size -- there are expenses associated with being a public company that can be prohibitive for small businesses.

However, Rippling is probably already big enough to be a public company for reasons that will be evident in a moment.

Startup companies like Rippling also ordinarily wait until the business can demonstrate two things. First, it needs to demonstrate a predictable pattern of growth, outcompeting key rivals. Second, it needs to show a viable path towards profitability. Companies that can't demonstrate these two things may not experience a successful IPO.

Market conditions also play into when a company goes public. If the public markets don't have an appetite for investing in IPO stocks, as was the case in 2022 and much of 2023, then companies like Rippling may choose to wait until sentiment improves.

Investing steps

Investing in stocks

Directly investing in Rippling stock may not be straightforward right now. But fortunately, investing in stocks is straightforward, generally speaking.

It all starts with having a good brokerage account. Most offer zero fees, no account minimums, and online services, which are all beneficial things to look for. Fidelity is a good brokerage for many investors. But beyond looking for the big things, choosing a brokerage may come down to which platform has the most intuitive user interface, which is subjective to each investor.

Investors are technically ready to buy stocks after they've opened brokerage accounts. But practically, they need to set an investment budget first. There's no right answer here. But investing should always be within one's means -- investing on margin should consequently be avoided. And if there's any chance an investor might need the money within the next five years, it's likely best to keep it out of stocks.

Once investors have a funded brokerage account, they can buy shares of any public company that they'd like. However, it's always best to do research first. For example, if Rippling were a public company, some things to research would be its customer retention metrics, revenue growth, whether its profit margins were improving or deteriorating with scale, and how much of the company was owned by insiders, among other things. Knowing this information would help one decide whether it would be a good investment or not.

Finally, when investors have identified a good stock to buy, all that's left is to actually buy it. Online brokerages have trading options. Typically, users need to input details like whether they want to buy or sell, the target ticker symbol, and how many shares to buy. For brokerages that allow the purchase of fractional shares, users can indicate how much money they want to invest rather than how many shares they want to buy.

How to buy

How to buy Rippling stock

Accredited investors enjoy some of the only ways to invest in Rippling stock. For example, Forge Global (FRGE 0.52%) runs an exchange for privately held companies. Only accredited investors can use it for buying and selling shares of private companies. But it's possible to invest in Rippling stock this way and through other exchanges that offer a similar service.

Another way to invest in Rippling is by funding stock options through Equitybee and similar platforms. In this scenario, an employee at Rippling would have to want liquidity for their stock compensation prior to an IPO event. Accredited investors can provide liquidity in exchange for future shares.

Profitability

Is Rippling profitable?

We can't definitively say whether Rippling is a profitable company. The company hasn't gone public, so some of the most useful information isn't publicly available. But here's some of the financial information we can know and glean about this business.

First, it's clear that Rippling is a high-growth company. According to a company blog post in March 2023, Rippling is growing at "triple-digit rates." This implies that the business is more than doubling in a single year, which is extraordinary.

Second, Rippling is a subscription-based business. And a March 2023 Reuters article said that Rippling had already surpassed $100 million in annual recurring revenue.

Third, Rippling is also a well-funded business, claiming to have more than $1 billion in cash.

Software-as-a-service (SaaS) businesses like Rippling typically have very high gross profit margins. So it's probably earning an outsized gross profit. And with higher interest rates in 2023, it should be earning substantial interest income from its $1 billion in the bank.

Still, it's more probable that Rippling is losing money on a net basis because that's normal for an enterprise software company at this stage. As co-founder and CEO Parker Conrad said, its incredible cash position allows it to "build great products no matter what happens with the economy." So the company has plans for how to spend the money -- it's not hoarding it for the interest income.

Moreover, Rippling's institutional investors want to see the company spend money to grow at an outsized rate -- that's why they're giving it the money. So, companies at this stage are unlikely to hold back on growth to boost profits.

Should you invest?

Should I invest in Rippling?

When a company goes public through an IPO process, the registration documents are packed full of useful information. This can help investors know if they should invest in the company or not. And in this case, there's still plenty of information that's lacking. So it's hard to say whether it will be a good investment.

Investing is personal. And a high-growth software startup might not be a good option for every kind of investor.

That said, investors can think about Rippling in terms of risk and reward. For example, studies have shown that many of the best stock performers are high-growth companies. Growing at a triple-digit pace and well-funded for future growth, Rippling could be a rewarding opportunity.

Rippling also appears to be a company that can execute well. In early 2023, the company had to process over 50,000 payments on the same day that its bank failed, even though its money was locked up for a then-unknown time. But thanks to redundancies in its system, it was able to process payments on time. It then raised $500 million from investors in just 12 hours, ensuring its next round of payments was processed on schedule as well.

Rippling eventually recovered the lost funds. However, the situation proved that the company can get the job done even under extreme duress.

On the other side of the coin, there are potential risks with a Rippling investment to be aware of. For starters, it appears that the company has an expensive valuation. Its founding round of $500 million was at a $11.25 billion valuation. The previously cited Reuters article from about the same time said it had about $100 million in annual recurring revenue, making it appear that Rippling's valuation is more than 100 times its trailing sales, which is extreme and could limit some of its future upside.

The bigger issue for Rippling might be competition. Larger, more entrenched players may be more trusted by large enterprises. While it's true that Rippling offers a unique trio of software services, many of the big companies offer services in one or more of these areas and could expand into other areas with relative ease.

For example, Automatic Data Processing (ADP -1.33%) already has trusted payroll services, and it has options for HR, as well. It wouldn't be a stretch for the company to develop IT solutions in the future. The same could be said of Paylocity (PCTY 0.31%) and others.

All said, I believe that investors should consider Rippling to be on the riskier side of investments. That doesn't mean that it will be a bad investment. But it means that investors will need to make sure it's right for them and invest an amount of money that adequately factors in the potential downside.

Related investing topics

ETFs

ETFs with exposure to Rippling

Exchange-traded funds (ETFs) are for investors who want to invest in a theme without picking the individual winners of that theme. ETFs own many stocks in the same category and provide shareholders with instant diversification.

I'm unaware of any ETFs that have direct or indirect exposure to Rippling. But there are some ETFs for related investing themes.

One possible theme is cloud-based software. For this, investors who like the idea of Rippling could buy shares of The Global X Cloud Computing ETF (CLOU 1.13%). Many of the companies held in this portfolio are enterprise software companies with a SaaS business model, just like Rippling.

For investors who simply like the idea of younger companies as opposed to stodgy stalwarts, another possible theme could be IPO stocks. For this, investors could consider The Renaissance IPO ETF (NYSE:IPO), which has holdings in many exciting companies that have gone public in recent years. And when it finally does go public, there's a chance that The Renaissance IPO ETF could buy shares of Rippling to add to the portfolio.

The bottom line on Rippling

Rippling is an exciting startup that's growing fast, executing well, and is well-funded for the future. Unfortunately, retail investors don't have good options for investing in the company today. But it's one to keep an eye out for because it will probably go public in the not-so-distant future.