What You Need To Know
Reddit Inc. is currently engaging in discussions with potential investors for a possible initial public offering (IPO), a move eagerly anticipated by those keen on new market listings. Based in San Francisco, Reddit, known for its role in the 2021 meme-stock surge, is considering an IPO potentially in the first quarter. Last year, the company was collaborating with Morgan Stanley and Goldman Sachs Group Inc. for the listing and pondered a valuation of up to $15 billion.
However, the landscape for first-time share sales in the US has been challenging. Market volatility and underwhelming performances of key IPOs in late 2023 have dampened prospects for significant IPOs this year. With 2023's total IPO volume in the US barely exceeding the low levels of 2022, companies and advisors are now setting their sights on 2024 for major listings.
Among these is Rubrik Inc., a cloud and data security startup backed by Microsoft Corp., also mulling an IPO in the early part of the year. Similarly, Kim Kardashian’s Skims, an underwear brand valued at $4 billion, is exploring options, including an IPO potentially next year. Reddit, Rubrik, and Skims, however, have not confirmed their plans, and the details remain subject to change.
Shein, a fast-fashion retailer, has also filed confidentially for an IPO in the US, slated for the coming year. Meanwhile, other firms, including Chinese electric-vehicle maker Zeekr Intelligent Technology Holding Ltd. (Geely's Zeekr Gears Up for New York IPO) and EQT AB-backed Waystar Holding Corp., are contemplating IPOs, navigating the market conditions and timing strategically.
Read: Shein Targets $90 Billion IPO Valuation Amid Market Volatility
Why This Is Important for Retail Investors
Access to Emerging Markets: An IPO, like those planned by Reddit, Rubrik, Shein, or Skims, provides retail investors with an opportunity to invest in emerging markets and potentially high-growth companies. It expands the range of investment options beyond established stocks, offering the potential for higher returns.
Portfolio Diversification: The introduction of new stocks from various sectors, including technology, fashion, and cloud security, allows retail investors to diversify their portfolios. This diversification can reduce risk by spreading investments across different industries and market segments.
Participation in Growth Stories: Investing in an IPO allows retail investors to participate in the growth story of a company from an early stage. Companies like Reddit, Shein, and Skims have strong brand recognition and consumer appeal, which can be attractive for investors looking for companies with the potential for rapid expansion and market penetration.
Market Sentiment Indicator: The influx of IPOs, especially from high-profile companies, can be a positive indicator of market health and investor sentiment. It suggests confidence in the market's stability and growth prospects, which can be beneficial for the overall investment climate.
Innovative Investment Opportunities: Companies like Rubrik in cloud and data security or Zeekr in the electric vehicle sector represent innovative and forward-thinking industries. Investing in such IPOs gives retail investors a chance to be part of new technological advancements and trends, potentially leading to substantial long-term gains.
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How Can You Use This Information?
Here are some of the investing ideas that can be explored using this information:
Growth Investing
Companies like Reddit, Rubrik, and Skims represent classic growth investing opportunities. They are in sectors with potential for rapid expansion, such as technology and fashion. Investors can capitalize on their potential for higher earnings growth rates than the broader market.
Growth investing focuses on stocks of companies expected to grow at an above-average rate compared to other stocks in the market; learn more in our article titled 'What is Growth Investing?'.
Momentum Investing
The hype and buzz around high-profile IPOs, like those of Reddit and Kim Kardashian's Skims, can create short-term momentum. Investors can ride this wave, especially in the initial post-IPO trading period, as these stocks might experience rapid price increases due to high investor interest and media attention.
Momentum investing rides the wave of existing market trends by buying assets that have shown an upward price trend and selling those in a downtrend.
Sector Specific Investing
The diversity of companies going public – from tech and cloud security to fashion and electric vehicles – allows investors to target specific sectors. For example, investing in Zeekr targets the electric vehicle sector, which is poised for growth, given the global shift towards sustainable transportation.
What is Reddit?
Reddit is an interactive online platform where users submit links, create content, and engage in discussions on a wide array of topics. On this site, users can post web links that other members vote up or down, influencing their visibility on the site’s home page.
The platform features discussion areas for users to debate and vote on comments related to these links. Comments with many downvotes become less visible, though they can still be accessed. Users gain 'karma' points as a reward for submitting articles that others find interesting.
Reddit organizes posts into various categories like sports, gaming, music, movies, food, and many more. Additionally, it hosts numerous 'subreddits' dedicated to specific subjects such as programming, science, and politics.
Read What Others Are Saying
Bloomberg: Reddit Leads Class of 2024 IPO Candidates Testing the Water
Reuters: Reddit aims for IPO in second half of 2023 - The Information
What you should read next:
Relevant ETFs
Some investors prefer to invest in stocks via an exchange-traded fund for ease and reduced risk. Some popular ETFs include the following:
Large-Caps: Vanguard Mega Cap ETF (MGC)
Mid-Caps: Vanguard Mid-Cap ETF (VO)
Small-Caps: Vanguard Small-Cap ETF (VB)
Growth: iShares Core S&P U.S. Growth ETF (IUSG)
Value: iShares Core S&P US Value ETF (IUSV)