Experts believe Reddit is filing for an initial public offering at the right time, but that it will be an “interesting test” for the market and investors should be careful.

Reddit is set to begin selling shares on the New York Stock Exchange Thursday, with executives and employees raking up 22 million shares already at US$34 each, sources told Bloomberg News.

Greg Martin, managing director at Rainmaker Securities, said Reddit has tried for years to set up an IPO, but now is the right time to follow through with the plan.

“I think that their investors need to monetize and now is a really good time to go public,” he told BNN Bloomberg in a television interview on Thursday. “The market is incredibly buoyant. We're reaching all-time highs.”

Martin said Reddit’s initial price makes it a more attractive option than its main competitors Snap and Pinterest in terms of revenue multiples, but the price is still on the high side.

“It's a pretty lofty multiple that they're currently trading at,” he said. “I think you have to approach it with caution. If you look at the company, 98 per cent of the revenue in Q4 (fourth quarter) was advertising.”

Phil Young, portfolio manager at Cidel Asset Management and an avid Reddit user, said the company is attractive because of its active user base and potential for growth.

“I think Reddit will be a really interesting test for the IPO market, which has been in a dry spell for the last few years after a boom in 2021 induced by those low-interest rates during the pandemic,” he told BNN Bloomberg in a television interview on Thursday. “We'll have to see how investors react.”

Young said Reddit’s revenue per user is behind other social media networks, but the company also traditionally has fewer ads and can work to monetize user’s data, meaning there is room to grow.

“When you think about the company going forward, if it's to be a successful stock, the company really has to show that it can increase (the revenue per user),” he said.

“The most interesting side is actually related to their data and monetizing that data. On Reddit, they have this very text-rich group of data that will be valuable to train AI models for different companies.”

Last month, Reddit signed a US$60-million deal with Google that allows the search engine to use Reddit posts to train artificial intelligence models.

Martin isn’t convinced the AI strategy is as lucrative as some are suggesting, however.

“I think you have to question whether that AI story can build enough to drive a multiple that could sustain these price levels,” he said. “I think an investor should approach this one with caution because it's already priced very high.”

Martin said the content on Reddit does lend itself to an AI play, but worries the revenue might fall short.

“Even at $60 million, if you think they're going to do $1 billion of revenue this year, it's still six per cent of revenue,” he said. “It's still a very tiny component of the business and I'm not sure how big that ultimately can become.”

“Google would be maybe one of your biggest customers that you could ever have.”

With files from Bloomberg News and The Associated Press