Reddit shares eased back from highs on Thursday after jumping as much as 67 per cent above their initial public offering price, a day after the social media company and its shareholders raised $748 million.
The figures sent a strong signal that the window for US IPOs is reopening.
The San Francisco-based company’s shares traded on Thursday at $50.44 each at market close, above their opening price of $47.
The trading comes after Reddit and some of its stockholders sold 22 million shares at $34 each, in an offering that priced at the top of a marketed range.
At the current price, Reddit has a market value of nearly $8 billion based on the outstanding shares listed in its filings with the US Securities and Exchange Commission.
Including stock options and restricted share units, Reddit’s fully diluted valuation is more than $9 billion.
Some analysts argued before the pricing that the company merits a valuation around the $10 billion it achieved in a 2021 funding round.
Reddit’s IPO, the fourth largest this year, is a high-profile addition to 2024’s roster of newly and soon-to-be public companies. The biggest of those listings was the $1.57 billion offering by Amer Sports in January.
The Reddit listing comes a day after the $713 million Astera Labs offering. Astera, a semiconductor connectivity company focused on artificial intelligence, priced its shares above its marketed range and then jumped 72 per cent in its trading debut on Wednesday.
Earlier on Wednesday, Reddit and its shareholders were expecting the IPO, led by Morgan Stanley, Goldman Sachs Group, JP Morgan Chase and Bank of America, to price at or above the top of the marketed range.
Two-year slog
Reddit’s more than two-year slog to listing reflects the ups and downs of the market, beginning with its initial confidential filing in 2021, when IPOs on US exchanges set an all-time record of $339 billion, according to data compiled by Bloomberg.
IPOs in the US have tumbled since then, reaching only $26 billion last year, the data shows.
Reddit’s IPO tops big listings in September by US technology companies Instacart, which raised $660 million, and Klaviyo, with a $659 million offering.
While those IPOs, along with British chip designer Arm Holdings’s $5.23 billion offering – last year’s biggest – failed to launch a listings rush, the market has warmed since then.
This year, almost $8.7 billion has now been raised via IPOs on US exchanges, the data show. That’s an increase of about 150 per cent at this point last year.
The strong showings by Reddit and Astera provide a market temperature check for other IPO candidates such as Microsoft-backed data security start-up Rubrik and healthcare payments company Waystar Technologies.
Losses shrinking
Founded in 2005, Reddit averaged 73.1 million daily active unique visitors in the fourth quarter, according to its filings. The company reported a net loss of $91 million on revenue of $804 million last year, compared with a net loss of about $159 million on revenue of $667 million a year earlier.
About 8 per cent of the IPO shares are being set aside for Reddit users and moderators who created accounts before January 1, as well as some board members and friends and family of some employees and directors. Those shares won’t be subject to a lock-up, meaning the owners can sell them on the opening day of trading, according to Reddit’s filings.
Reddit’s largest shareholder is Advance Magazine Publishers, part of the Newhouse family publishing empire that owns Conde Nast, which bought Reddit in 2006 and spun it out in 2011.
Reddit said its millions of loyal users and moderators pose risks as well as a benefit for the company. Redditors have a historically combative relationship with the site, launching revolts over everything from racism on the platform to executives’ staffing decisions.
Shorting plan
Thousands of members of the WallStreetBets forum – which boasts around 15 million users and helped popularise meme stocks like GameStop – voted to boost a forum post about shorting Reddit’s stock when it began trading. Their reasons varied from the company’s lack of profitability to competitive concerns.
Reddit co-founder and chief executive Steve Huffman said in a signed letter included in the filings that the company has many opportunities to grow both the platform and the business.
“Advertising is our first business, and advertisers of all sizes have discovered that Reddit is a great place to find high-intent customers that they aren’t able to reach elsewhere,” Mr Huffman said.
“Advertising on Reddit is rapidly evolving, and we are still in the early phases of growing this business.”
AI licensing
Reddit said it is in the early stages of allowing third parties to license access to data on the platform, including to train artificial intelligence models.
The company said that in January it entered into data licensing arrangements with an aggregate contract value of $203 million and terms ranging from two to three years. It expects a minimum of $66.4 million of revenue from those agreements this year, according to the filings.
Reddit also has announced a deal with Alphabet’s Google, allowing Google’s AI products to use Reddit data to improve their technology. Large language models often need vast troves of human-generated content to improve.
Mr Huffman owns shares set to give him 3.3 per cent of the voting power after the offering. They include class B shares that carry 10 votes each compared with one each for the class A shares sold in the IPO, the filings showed. Mr Huffman also has a voting proxy agreement with Advance.
Other large shareholders include chief operating officer Jennifer Wong, as well as FMR and entities affiliated with OpenAI chief executive Sam Altman, Tencent Holdings, Vy Capital, Quiet Capital and Tacit Capital, according to the filings.
Mr Huffman and those investors were set to hold about three quarters of the shareholder voting rights after the IPO.
Mr Huffman’s fellow co-founder, venture capitalist Alexis Ohanian, isn’t listed among the investors with stakes of 5 per cent or more and isn’t named elsewhere in the filings.
