How to Invest in Rippling Stock Pre-IPO

Investors understandably want to know how to invest in Rippling stock. The company specializes in cloud-based enterprise software and is taking the small and medium-sized business world by storm. Founded in 2016, it's already soared to a $13.5 billion valuation.

Rather than focus on doing just one thing well, 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 and manage their benefit plans. Companies can also set up devices and grant access to apps through its IT solutions. Finally, Rippling's customers can log hours and pay their workers accordingly.

Co-founder and CEO Parker Conrad admits that conventional wisdom for start-ups says to focus on doing just one thing well. But he wants to build what he calls a "compound software" business. He believes that by offering multiple software solutions, Rippling can provide customers with better data, better pricing, and better results.

Perhaps this unconventional approach is why Rippling is gaining traction so fast. According to management, since it's an all-in-one solution, businesses that use its software need half as many workers in their HR, IT, and finance departments. Moreover, Rippling can price its software cheaper than competitors since it offers a software bundle.

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

Finally, Rippling integrates with major enterprise apps, including Slack from Salesforce (CRM 1.73%), Zoom Communications (ZM 3.29%), and Asana (ASAN 3.84%). This means that companies can add Rippling while keeping various other enterprise products they're already using.

Is it public?

Is Rippling publicly traded?

Shares of Rippling stock aren't 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 hadn't gone public as of December 2024. Privately held companies customarily go public through an initial public offering (IPO), 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, boost brand awareness, provide private investors a way 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 IPO?

When will Rippling IPO?

Rippling hasn't announced an IPO yet, so it's not on the IPO calendar. Rumors suggest it's gearing up for an IPO in 2025, but there's no way to be sure exactly when Rippling might go public.

Typically, companies choose to wait until they reach sufficient size since the expenses associated with being a public company 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.

Start-up companies (like Rippling) also ordinarily wait until the business can demonstrate two things: a predictable pattern of growth, outcompeting key rivals, and a viable path toward profitability. Companies that can't demonstrate these two things may not enjoy a successful IPO.

Market conditions also play into when a company goes public. Sometimes, the IPO market is hot, such as in 2020. But if the public markets don't have an appetite for investing in IPO stocks, as has largely been the case from 2022 through 2024, companies like Rippling may choose to wait until sentiment improves.

Steps to investing

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, have online services, and do not have account minimums, 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 for 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. 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 they'd like. However, it's always best to do research first. For example, if Rippling were a public company, research might include its customer retention metrics, revenue growth, profit margins, and insider ownership. Knowing this information would help one decide whether it would be a good investment.

Finally, when investors have identified a good stock, all that's left is actually to buy it. Online brokerages have trading options. Typically, users must 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 2.8%) runs an exchange for privately held companies. Only accredited investors can use it to buy and sell shares of private companies. But it's possible to invest in Rippling stock this way and through other exchanges offering similar services.

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 know and can 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 was growing at "triple-digit rates." Other sources suggest its revenue jumped by more than 200% in 2022 before growing another 100% in 2023.
• Second, Rippling is a subscription-based business. And its latest funding round suggests it's already generating a whopping $350 million in annual recurring revenue.
• Third, Rippling is also a well-funded business. According to TechCrunch, it has raised $1.4 billion in funding as of its Series F round.

Software-as-a-service (SaaS) businesses like Rippling typically have very high gross profit margins. So, it's likely earning an outsize gross profit. It's probable that Rippling is growing a high-margin revenue stream very fast. But it's still likely losing money on a net basis because that's normal for an enterprise software company at this stage.

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

An important aspect of Rippling's business model would also suggest it's still losing a consequential amount of money. Consider that it's building software for three distinct use cases (and plans to expand into many more down the road).

For this reason, the company planned to spend almost half of its revenue on research and development alone in 2024, and that's before factoring in stock-based compensation. This could pay off in the long run as it outspends its rivals. But it's another sign that Rippling is likely losing money.

Should I 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 decide whether to invest in the company. In this case, however, plenty of information is still lacking, so it's hard to say whether it will be a good investment.

Investing is also personal. And a high-growth software start-up 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 able to execute well. In early 2023, the company had to process more than 50,000 payments the same day its bank failed, even though its money was locked up for a then-unknown time. 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 also processed on schedule. Rippling eventually recovered the lost funds. However, the situation proved that the company could get the job done even under extreme duress. This speaks volumes to the quality of the business.

On the other side of the coin, there are potential risks to be aware of with a Rippling investment. For starters, it appears the company has an expensive valuation. Its funding round in 2024 valued it at $13.5 billion, and some sources suggest it has more than $350 million in recurring revenue. That puts the price-to-sales valuation at close to 40, which is high and could limit some future upside.

However, the much bigger issue for Rippling might be competition. It's true that Rippling offers a unique trio of software services, and that's served it well up to this point. But the company's CEO has said its "compound software" approach is "a prediction of how software will be built in the future."

If it indeed has an effective new approach to cloud-based software, other companies will likely follow. And many bigger companies offer services in one or more of Rippling's areas and could feasibly expand into other areas with relative ease.

For example, Automatic Data Processing (ADP -0.49%) already offers trusted payroll services and 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 -0.33%) and others.

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

ETF options

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 offer shareholders instant diversification. Since Rippling isn't publicly traded, it doesn't have stock held by an ETF. But there are some ETFs for related investing themes.

One possible theme is cloud-based software. Investors who like the idea of Rippling could buy shares of The Global X Cloud Computing ETF (CLOU 1.31%). Many of the companies held in this portfolio are enterprise software companies with a SaaS business model, just like Rippling.

Related investing topics

Another possible theme for investors who simply like the idea of younger companies as opposed to stodgy stalwarts is IPO stocks. In this case, investors could consider The Renaissance IPO ETF (IPO 0.61%).

This fund 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 start-up that is growing fast, executing well, and 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.

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