Reddit announces IPO with a valuation target of $6.4 billion
Reddit, the popular social media platform, has disclosed plans for one of the year's most anticipated initial public offerings (IPOs), aiming to raise up to $748 million. The company and its existing shareholders intend to sell 22 million shares priced between $31 and $34 each. Approximately 15.3 million of these shares will be sold by Reddit itself, while the remaining will be offered by investors who are also the company's employees.
Valuation and IPO details
At the upper end of the proposed price range, Reddit's market value would stand at $5.4 billion, based on nearly 159 million shares outstanding. When fully diluted to cover employee stock options and restricted stock units, the company's valuation could reach about $6.4 billion. The IPO is being spearheaded by prominent financial institutions including Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., and Bank of America.
A unique offering for users and moderators
In a unique move, Reddit is setting aside about 8% of the IPO shares for its users and moderators who created accounts before January 1, as well as some board members and friends and family of certain employees and directors. These shares will not be subject to a lockup, which means that they can be sold on the opening day of trading. The company plans to list its shares on the New York Stock Exchange under the symbol RDDT.
Reddit's financial performance and user base
Founded in 2005, Reddit reported an average of 73.1 million daily active unique visitors in the fourth quarter. The company disclosed a net loss of $91 million on revenue of $804 million in 2023, showing improvement from a net loss of about $159 million on revenue of $667 million the previous year. Advance Magazine Publishers Inc., part of the Newhouse family publishing empire that owns Conde Nast, is Reddit's largest shareholder.
Future growth opportunities and risks
Reddit's CEO, Steven Huffman, expressed optimism about the company's growth potential in a letter included in the filings. He highlighted advertising as a key area of growth, stating that Reddit is an attractive platform for advertisers seeking high-intent customers. However, he also acknowledged the risks associated with managing Reddit's large user base and moderators who have historically had a combative relationship with the site over various issues.
Plans for data licensing and AI development
Reddit is in the initial stages of allowing third parties to license access to data on its platform, including for training artificial intelligence models. The company has entered into data licensing arrangements with an aggregate contract value of $203 million. It also announced a deal with Alphabet Inc.'s Google, allowing Google's AI products to use data to improve its technology. However, it's dependence on unpaid moderators is perceived negatively by the investors.
