Reddit’s (NYSE:RDDT) initial public offering started off with a bang, prompting investor questions about buying after the Reddit IPO. It almost certainly is. Reddit is where the r/WallStreetBets community resides. They were the group that pushed up GameStop (NYSE:GME) stock and AMC Entertainment (NYSE:AMC) stock.
Just to provide some background, technology entrepreneurs Alexis Ohanian and Steve Huffman founded Reddit back in 2005. Geared toward social media-savvy users, Reddit (according to analytics firm Semrush, via CNBC) is “one of the most-visited websites in the U.S.”
Reddit IPO: What You Need to Know Now
On March 21, Reddit started trading under the symbol RDDT on the New York Stock Exchange. As InvestorPlace contributor Shrey Dua concisely summed up, Reddit “hopes to raise up to $748 million in its stock offering on the sale of 22 million shares, priced between $31 and $34 shares, valuing the company at about $6.5 billion.”
Reddit insiders may have gotten early access to the shares through a directed share program. InvestorPlace contributor Chris MacDonald pointed out that these Reddit insiders “will be able to sell stock immediately following the IPO.” Consequently, traders should expect early volatility with Reddit stock.
Granted, the buyers started off in the driver’s seat with this particular IPO. Reddit shares opened on their first day of public trading at $47 per share. Amazingly, within the first few minutes of trading, the Reddit share price jumped above $53.
However, a share-price retracement could be imminent, as volatility is the norm when it comes to highly anticipated IPOs. It’s trading down around $46.
If you can handle the ups and downs, RDDT stock has moonshot potential. After all, Reddit is an important social media platform with a loyal following. So now, let’s consider the trajectories of two similar stocks and see how they’ve panned out.
Will Reddit End Up Like Meta Platforms, or Like Pinterest?
Here are two possibilities. RDDT stock could end up taking a moonshot ride like Meta Platforms (NASDAQ:META) stock did. Or, it could just take a round trip like Pinterest (NYSE:PINS) stock ended up doing.
Let’s consider Pinterest stock first. After some initial volatility in 2019, the stock settled at around $34. Then, it soared above $80 in 2021 before coming back down to earth.
Recently, PINS stock traded at around $34, so it basically took a round trip and wasted the time of long-term investors. On the other hand, if they took profits at the right time, Pinterest’s shareholders could have booked substantial gains.
Thus, even if RDDT stock ends up like Pinterest stock, that’s not a terrible outcome. I would say that Reddit is more like Pinterest than Meta Platforms, since Meta is a gigantic, diversified business that’s much more than Facebook now.
Still, Reddit could someday grow and evolve like Meta Platforms did. If that happens, then Reddit stock might soar like META stock, which once traded below $30 but is currently above $450.
RDDT Stock: Are You Ready to Ride the Roller Coaster?
Will Reddit end up being more like Pinterest or Meta Platforms? It’s hard to predict, but either way, there’s moonshot potential and volatility is practically guaranteed.
So, assess your risk tolerance if you plan to be an early investor in the Reddit IPO. However, given the possibility of a huge multiyear rally, it’s worth taking a chance on RDDT stock as long as you only take a small position size.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.