Reddit, one of the internet’s most popular discussion forums, is poised to make waves with its much-anticipated initial public offering (IPO) and trading debut, set to happen on Thursday (March 21).
The San Francisco-based company intends to list 22 million shares on the stock market at US$34 each, the high end of its anticipated range of US$31 to US$34. Reddit itself will sell 15.28 million shares, while its existing shareholders will sell 6.72 million shares; the company will not receive proceeds from shares sold by existing shareholders.
Leading up to the news, reports suggested that Reddit’s IPO was four to five times oversubscribed, indicating strong investor interest and positioning the company to reach the US$6.5 billion valuation it was hoping to achieve.
Founded in 2005, Reddit has evolved into a diverse platform hosting myriad discussions across over 100,000 active forums; called “subreddits,” each of these niche areas focuses on its own topic. Reddit’s unique approach to community-driven content distinguishes it from traditional social media platforms.
Reddit has deviated from the usual IPO practice by reserving 8 percent of its shares for to board members, employees, users and moderators. Only users, or “Redditors,” with established accounts as of January 1, 2024, will qualify, and shares will be allocated based on contributions and engagement metrics. These shares won’t be subject to lockup.
Despite its prominence, Reddit’s IPO journey has been marked by deliberation, and the company’s delayed entry into the public market has prompted questions about its strategy and long-term vision.
Reddit’s association with events like the GameStop (NYSE:GME) short squeeze in January 2021 has also raised speculation about how the company’s IPO will fare. Thousands of Redditors in the WallStreetBets subreddit played an integral role in causing GameStop’s share price to skyrocket, leaving short sellers with major losses.
WallStreetBets participants have created volatility for other “meme stocks” as well. For now, it remains to be seen whether the company’s own shares will be affected by these dynamics after listing.
However, it’s worth noting that some Reddit users aren’t thrilled about the IPO, or about the company’s 2023 move to begin charging for API access. This decision forced the closure of popular third-party apps — some of which offered important accessibility features — and caused mass protests on the platform.
Jordan Zazzara, a moderator of WallStreetBets, plans to observe Reddit’s performance before deciding whether to purchase shares of the company. “Not because I’m not generally optimistic about Reddit as a business, but because I’m sure it’s going to be volatile,” Zazzara told Bloomberg in an email.
There are also concerns regarding the profitability of the company as a whole. Since its launch in 2005, Reddit has yet to have a profitable year, as per the Associated Press. This is compounded by the fact that user growth has stalled — IPO papers from Reddit state that its 500 million monthly users have not grown for the past three years.
On the flip side, Reddit CEO Steve Huffman remains optimistic about the future. Reddit recently unveiled a US$60 million partnership with Google focused on providing the tech giant with content it can use to train artificial intelligence models.
“I have never been more excited about Reddit’s future than I am right now,” Huffman wrote in the IPO papers. “… As the world becomes increasingly data-driven, we offer solutions that are human and experience-focused. We expect our data advantage and intellectual property to continue to be a key element in the training of future (large language models).”
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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.
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