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The roadshow for Reddit's closely watched public debut will begin on the New York Stock Exchange on Monday, as it prepares to begin trading the following week in a slate of technology that will set the tone for the market in 2024.
The social media platform is trying to secure a major investor as it touts its fast-growing advertising business and the promise of revenue from the sale of its data. Reddit plans to price its initial public offering on March 20 and begin trading the next day, according to two people familiar with the matter.
The company is targeting $31 to $34 per share, which would imply a valuation of up to $6.5 billion. Reddit and the New York Stock Exchange declined to comment.
If Reddit prices as planned, the listing would give it a value well below the $10 billion it reached at its last private valuation in 2021. IPO activity in the US has remained low for more than two years, and even those that have managed to float Its IPO shares have recently been forced to offer investors significant valuation cuts compared to listed competitors.
One IPO banker, who was not involved in the deal, said the listing “won't define the entire IPO market – but poor performance certainly won't help when we think about technology IPOs in general.”
Reddit will look to attract a “seed” or “cornerstone” investor who will agree to have their names published in the prospectus in exchange for ensuring a large allocation of shares, two people said. These investors have become increasingly popular in the challenging fundraising environment.
Reddit's largest current shareholders include Fidelity, the $4.5 trillion asset management group, and Chinese company Tencent.
For the NYSE, Reddit represents its most significant tech listing since the height of the 2020-2021 IPO boom. The New York Stock Exchange, owned by InterContinental Exchange, is expected to do its best and encourage more companies to follow suit.
Reddit's choice to list on the New York Stock Exchange surprised some observers, as rival Nasdaq has long had a reputation as the default home for high-profile tech groups. But the NYSE has quietly created a niche for hosting social media groups.
Its pitch to encourage Reddit to choose the so-called Grand Council included a major marketing package. Both the traders and the historic trading floor will be decorated in Reddit's white and orange color scheme, according to people familiar with the plans.
Listings on the NYSE are less automated than those on the Nasdaq, with a dedicated human market maker helping to manage liquidity and reduce volatility. Trading firm GTS will be Reddit's designated market maker, having fulfilled the same role with Twitter, Pinterest and Snap. Morgan Stanley and Goldman Sachs are the lead bankers on the deal.
“Twitter, Snap and Pinterest all had successful print runs, all closed above price, all traded at 100 percent of their first-day float and were all traded on the NYSE,” said Patrick Murphy, partner at GTS. “If you do a real in-depth case study on dilution volatility, it makes sense to choose the DMM model.
As the birthplace of “meme stocks” and the infamous WallStreetBets trading forum, Reddit warned in its prospectus that trading in its shares could be particularly volatile.
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The company, which was established as an independent subsidiary by Condé Nast's parent company Advance Publications in 2011, has never turned a profit in its 19-year history, recording a loss of $91 million in 2023.
It generated $800 million in sales last year, most of which came from advertising. Reddit will tell potential investors that it is building an advertising business similar to Pinterest, where it doesn't collect as much personal data about its users and instead targets advertising based on interest and intent, according to a person familiar with the plans.
On top of the ads, Reddit is trying to lure potential investors with the promise that licensing user data to AI groups looking to train their large language models would be a lucrative business. It has already concluded a deal with Google worth about $60 million annually.
