Reddit, the popular social media platform known for its iconic alien logo and diverse online forums, is set to make its highly anticipated debut on the New York Stock Exchange on Thursday under the ticker symbol "RDDT." The company priced its initial public offering (IPO) at $34 per share, the top end of the $31 to $34 range it had marketed earlier, valuing the company at $6.4 billion and raising $748 million for Reddit and its selling shareholders.
The successful pricing of Reddit's IPO is a significant milestone for the company, which confidentially filed for an IPO in December 2021 but delayed the process due to the stock market rout caused by the Federal Reserve's quantitative tightening. The debut will be closely watched by other companies looking to go public this year, as it will serve as a major test of the IPO market and investor appetite for new issues.
"If Reddit trades poorly, it will cast a shadow over the IPO market. Many companies will hit pause on their IPO initiatives," warned Julian Klymochko, CEO of alternative investment solutions firm Accelerate Financial Technologies.
As part of its plan to reward its user base, Reddit reserved 8% of the shares on offer for eligible users, moderators, certain board members, and friends and family members of its employees and directors. While this move is intended to recognize the platform's loyal community, it is not without risks, according to analysts.
Alan Vaksman, founding partner at investment firm Launchbay Capital, cautioned, "I don't know one company which really benefits from allocating shares to their users." Retail traders who gain early access to the IPO could potentially dampen demand and increase price volatility if they choose to sell when the stock starts trading.
Despite these concerns, Reddit's status as a cultural phenomenon and its unique position in the social media landscape may help attract investors. The company's 100,000 online forums, known as "subreddits," cover a wide range of topics and have played a significant role in shaping internet culture. Notable events, such as former U.S. President Barack Obama's "ask me anything" (AMA) interview on the platform in 2012, have further cemented Reddit's place in the digital world.
However, Reddit faces challenges in replicating the financial success of its larger rivals, such as Meta Platforms' Facebook and Elon Musk's X. The company has admitted that it is "in the early stages of monetizing (its) business" and has yet to turn an annual profit. Investors will be closely scrutinizing Reddit's roadmap to profitability and the changes it implements to achieve this goal.
"The real news is going to be after the first earnings call - where are they headed, what are the results looking like, what changes are they going to make," said Reena Aggarwal, director of the Georgetown University Psaros Center for Financial Markets and Policy.
Reddit's IPO comes at a time when the market for new issues has been in an extended dry spell, with few venture-backed tech deals taking place over the past two years. The company's valuation of $6.4 billion represents a significant haircut from its private market valuation of $10 billion in 2021 at the peak of the tech boom.
Despite the challenges, Reddit's revenue increased by 20% last year to $804 million, and its net loss improved from $158.6 million in 2022 to $90.8 million in 2023. The company has also identified data licensing as a potential major revenue stream, with plans to recognize about $66.4 million in such deals in 2024. A recent expanded partnership with Google, allowing the search giant more access to Reddit data for AI training and other tasks, could further bolster this aspect of the business.
