Reddit Makes Its Debut on the New York Stock Exchange: What Does This Mean for the Social Media Giant?
Reddit, one of the pioneering social media platforms, is making its long-awaited entrance into the financial market with its initial public offering (IPO) on the New York Stock Exchange on Thursday. The company, which was founded almost two decades ago, will begin trading under the ticker symbol “RDDT.”
The shares commenced trading at $47, reaching a peak of $57.80 early in the afternoon – an impressive increase of around 70% from its initial public offering price of $34. At its highest point, Reddit’s market capitalization stood at approximately $10.9 billion, signaling a significant milestone for the nearly 20-year-old company.
This move marks a major accomplishment for Reddit, which has been preparing for an IPO since at least 2021 when it appointed its first chief financial officer. The public listing also makes Reddit the first social media company to go public in years, and its performance could set a precedent for other companies considering an IPO.
Proceeds from a successful IPO can help Reddit invest in strategic growth areas, such as expanding new revenue streams and establishing itself as a data provider in the burgeoning artificial intelligence language model industry. A successful public offering could also provide a stable ownership structure for a company that has seen its fair share of ownership changes and leadership controversies throughout its history.
However, the success of Reddit’s IPO is far from guaranteed. The company has yet to turn a profit and admitted that “we may not be able to achieve or maintain profitability in the future.” Additionally, Reddit is offering its loyal users the opportunity to purchase IPO shares – a move that could result in volatility in the share price if these users quickly sell their holdings.
The IPO market has experienced a challenging few years, and successful public debuts typically spark further listings. Although 2021 was a record-breaking year for IPOs, deal-making on Wall Street has slowed significantly due to concerns over recession fears, rising interest rates, and geopolitical tensions.
While IPO activity is now picking up, with 23 listings priced thus far in 2023, companies that have gone public have underperformed the S&P 500 by approximately two percentage points, based on data from the Renaissance IPO Index.
Reddit priced its shares at $34 each, valuing the company at around $6 billion – less than the $10 billion valuation Reddit targeted on the private market in 2021. This may serve as a reminder that in the current economic climate, securing capital comes at a higher cost.
“Reddit’s IPO marks the return of the junk IPO,” according to David Trainer, CEO of New Constructs. “We think the company may never monetize its platform without alienating its users, and the entire premise of Reddit is user-generated content.”
Despite these challenges, some industry experts believe that there has never been a better time for Reddit to go public. The social media sector is preparing for potential disruptions if legislation that could ban TikTok in the United States progresses further. Additionally, Reddit has experienced impressive user growth, increasing its base by over 40% between 2021 and 2023.
“There’s really substantial growth potential when it comes to certain places outside the US, particularly ones where English is a primary language,” said Scott Kessler, global technology sector lead at research firm Third Bridge. “India has been identified as an enormous opportunity. Reddit is available in fewer than 10 languages, meaning the company could find new growth by making the platform accessible to more users around the world.”
One of Reddit’s strategies to monetize its user base includes licensing their data to help train ai models. The company recently announced an ai licensing deal with Google, reportedly worth $60 million per year. However, this move has raised concerns among some users and regulatory bodies. Reddit disclosed last week that the US Federal Trade Commission is investigating its plans to license data to ai firms, but the company insists it has not violated any consumer protection laws.
