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Reddit on Wednesday priced the initial public offering’s stock price at $34, the high end of its expectations, as a sign of investor demand for the growing tech company.
The San Francisco-based social media company valued its shares at between $31 and $34. At the $34 price, Reddit would be worth $6.4 billion, below the $10 billion valuation it received in a private funding round in 2021. The company raised $748 million in this offering.
The company’s stock will begin trading on the New York Stock Exchange on Thursday under the ticker symbol “RDDT.”
The pricing was a positive signal for startups and venture capitalists who have been closely monitoring Reddit’s offerings as a test for private technology companies looking to venture into public markets. According to data compiled by Renaissance Capital, which manages exchange-traded funds with a focus on IPOs, the number of companies listed in the United States remains at just over 100, and the number of companies listed last year was about four times the number of companies listed in 2021. 1, and activity is slowing down.
“There was some concern about technology demand heading into 2024,” said Matt Kennedy, senior strategist at Renaissance Capital. But he added that Reddit’s pricing, along with artificial intelligence company Astera Labs’ successful first trading day on Wednesday, “bodes well for the rest of the pipeline.”
Shares of grocery delivery company Instacart, one of the hottest tech companies to debut last year, are up about 58% this year. The stock price of Arm, a chip design company that also went public last year, rose about 90% during the same period.
The offering is a boon for Reddit’s largest shareholder. That includes co-founder Steve Huffman, who owns a 3.3% stake. Advance Magazine Publishers is affiliated with the parent company of Condé Nast. and a division of Chinese internet giant Tencent called Tencent Cloud Europe. Another co-founder, Alexis Ohanian, is not listed as a major shareholder in Reddit’s filing.
Reddit’s journey to the public market was a long one. Founded in 2005, the company was an early form of social networking, growing when Facebook was still in its infancy and MySpace was in its heyday.
Reddit relied on old-school style bulletin boards. The message boards were primarily text-based, divided by topic, and viewed by anonymous commenters. The company was sold to Condé Nast in 2006 for $10 million and then spun out after years of stagnation under previous management.
For years, Reddit’s revenue was meager. Some people have had fun experimenting with different forms of making money, such as community-based gift economies, but without solid results. By 2015, after a series of community uprisings and a revolving door of CEOs, Reddit had more than 100 million users, but only $12 million in annual revenue. . That year, Mr. Huffman, who retired in 2006, returned to lead the company.
Since then, Reddit has built an advertising business that now accounts for the majority of the company’s revenue. Last year’s sales were $804 million, an increase of about 21% from the previous year. Net loss was $90 million, compared with a loss of $158 million in the prior year period.
Reddit has also built a data-licensing business, selling information about user discussions and trends across the site to hedge funds and Wall Street firms, who use that information to gain an advantage in trading.
More recently, Reddit has promoted itself as a repository for leveraging its vast conversational data to train large-scale language models that can help artificially intelligent computers learn more human-like speech abilities. The company expects to make more than $200 million over the next three years from these types of deals with Google and others.
Perhaps the biggest obstacle to Reddit’s smooth IPO is its users. The thousands of forums, or “subreddits” that make up this site are monitored by an army of primarily volunteer moderators. Some balk at the idea of Reddit being a public company, worried that market forces and shareholder quarterly demands would undermine some of the features that made Reddit attractive.
Huffman said the anxiety about going public is part of a normal “maturation process.”
“We have the same love for Reddit as the community, and the same fear of losing it,” he told The New York Times last year.
Among the investment banks that led the Reddit offering were Morgan Stanley and Goldman Sachs.
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