Reddit Shares jumped as much as 70% in their debut Thursday in the first initial public offering (IPO) of a major social media company since then. Pinterest Hit the market in 2019.
The 19-year-old website that hosts millions of online forums priced its initial public offering on Wednesday at $34 a share, above the expected range. Reddit and selling shareholders raised about $750 million from the offering, with the company raising about $519 million.
The stock opened at $47 and reached a high of $57.80. At this price, the company's market value was about $10.9 billion. Reddit shares then fell to $48.64 about half an hour after trading began, giving the company a market value of about $7.9 billion.
Trading under the ticker symbol “RDDT,” Reddit is testing investors' appetite for new tech stocks after a long drought for IPOs. Since the peak of the tech boom in late 2021, no venture-backed tech company has gone public, and those that do — e.g. Instacart And Clavio Last year – it was disappointing. On Wednesday, the data center hardware company Astera Laboratories It made its public market debut on the Nasdaq and saw its shares rise 72%, underscoring investor enthusiasm for companies linked to the boom in artificial intelligence.
At its IPO price, Reddit was valued at about $6.5 billion, below the company's private market valuation of $10 billion in 2021, which was a boom year for the tech industry. The mood has changed in 2022, as higher interest rates and rising inflation prompt investors to move away from riskier assets. Startups responded by laying off workers, trimming their valuations and shifting their focus to profit rather than growth.
Reddit's annual sales for 2023 rose 20% to $804 million from $666.7 million the previous year, the company detailed in its prospectus. The company recorded a net loss of $90.8 million last year, which is smaller than its loss of $158.6 million in 2022.
Based on its revenue over the past four quarters, Reddit's market cap at its IPO gave it a price-to-sales ratio of about 8. the alphabet Deals to get 6.1 times revenue, dead It has a multiplier of 9.7, and Pinterest is at 7.5 and pop It trades at 3.9 times sales, according to FactSet.
In addition to these companies, Reddit also includes X, Discord, Wikipedia, and Amazon Streaming service Twitch as competitors in its prospectus.
Reddit is betting that data licensing can become a major source of revenue, and said in its filing that it has entered into “certain data licensing arrangements with a total contract value of $203.0 million and terms ranging from two to three years.” Reddit said this year it plans to generate about $66.4 million in revenue as part of its data licensing deals.
Google has also entered into an expanded partnership with Reddit, allowing the search giant to have more access to Reddit data to train its AI models and improve its products.
Reddit revealed on March 15 that the FTC was conducting a non-public investigation “focused on the sale, licensing, or sharing of user-generated content with third parties to train AI models.” Reddit said it was “unsurprising that the FTC expressed interest” in the company's data licensing practices related to AI, and that it did not believe it “engaged in any unfair or deceptive trade practice.”
Reddit was founded in 2005 by technology entrepreneurs Alexis Ohanian and Steve Huffman, the company's CEO. Existing stakeholders, including Hoffman, sold a total of 6.7 million shares in the IPO.
As part of its IPO, Reddit gave some of its top moderators and users, known as Redditors, the opportunity to buy shares through a directed sharing program. Companies like Airbnb, the approach And Rivian It has used similar programs to reward its quality users and customers.
“I hope they believe in Reddit and support Reddit,” Huffman told CNBC in an interview on Thursday. “But the goal is just to sell them on the deal. Just like any professional investor.”
Redditors have expressed doubts about the IPO, due to the company's finances and its often troubled relationship with moderators. Hoffman said he is aware of this fact and acknowledged the existence of the controversial Wallstreetbets subreddit, which has helped boost meme stocks like GameStop.
“That's the nice thing about Reddit, they tell it like it is,” Huffman said. “But you have to remember they're doing it on Reddit. It's a platform they love, it's their home on the internet.”
OpenAI CEO Sam Altman is a major Reddit contributor along with… Tencent and Advance Magazine Publishers, the parent company of publishing giant Condé Nast. Altman's stake in the company was worth more than $400 million before the stock began trading. Altman led a $50 million funding round to Reddit in 2014 and was a member of its board of directors from 2015 until 2022.
