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Reddit (RDDT) IPO will be the first major company to go public But experts don’t expect the IPO market, which has been cold since 2021, to restart on a large scale.
“I don’t think there’s going to be a boom,” said Jay Ritter, a professor at the University of Florida’s Warrington School of Business who studies IPOs.
Ritter reasons that the current IPO market is in a state of stagnation similar to that seen after previous booms such as the dot-com bubble. Part of his IPO ownership pattern that has developed over the past few years has been a spike in private company valuations.
For this reason, some recently listed companies have found themselves at lower valuations after being listed on major exchanges, and hold significant stakes in the same business, thus earning higher valuations. This is a deterrent for corporate executives and institutional investors who would benefit.
For example, Reddit’s IPO valued it at nearly $6.5 billion, lower than its 2021 private valuation of $10 billion. Instacart (CART) and Arm Holdings (ARM) also experienced valuation declines from previous funding rounds.
“A lot of companies inherently didn’t want a down round, especially for venture-backed companies,” Ritter said. “And I think that’s one of the things that’s holding some companies back.” [that aren’t going public]. ”
But some argue that valuations aren’t the key takeaway from the 2021 IPO boom. It was all about special acquisition companies, also known simply as “SPACs.” Excluding SPACs, the surge in IPOs in 2021 appears to be modest compared to historical averages, said Matt Frey, chairman of the capital markets and securities practice group at law firm Haynes & Boone.
Frye said SPACs have since “largely disappeared,” and believes more companies will turn to traditional IPOs as a way to raise capital.
“a” watch the progress approach’
As the first major IPO of 2024, Reddit is expected to serve as a test of investor appetite for newly listed companies, especially those touting artificial intelligence.
The company currently derives almost all of its revenue from advertising, but the social media giant said in its S-1 filing that it sees licensing data for AI use as a potential market opportunity. It pointed out.
“Our content is particularly important for artificial intelligence (“AI”). “This is a fundamental part of how many of the leading large-scale language models (LLMs) are trained,” the company wrote in its filing. “Our vast corpus of conversational data and knowledge makes us unique, and we believe its value will continue to grow over time as user-generated data continues to grow.”
Ritter said this is expected to be a theme for this year’s IPOs, given the current market focus on companies that could benefit from AI.
Given the potential AI use cases and recognition of Reddit’s consumer brand, those in the IPO space will be watching to see how the market reacts to Reddit’s listing.
“Reddit is a big enough name and well-known that it could potentially open up the market to other companies,” said Frye, whose law firm works with publicly traded companies. “Inbound interest in IPOs is definitely increasing. But in reality, it’s a wait-and-see attitude from companies.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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