Reddit aims to raise nearly $750M through its IPO
Reddit is gearing up for a massive initial public offering (IPO), aiming to raise as much as $748 million. The popular social media platform plans to sell 22 million shares priced between $31 and $34 each, targeting a valuation of up to $6.5 billion. Additionally, Reddit is reserving 1.76 million shares for its users and moderators who created accounts before January 1, without any lockup period.
Reddit's journey to stock market entry
Since its confidential filing in 2021, Reddit's journey to the listing has experienced market fluctuations. Back then, IPOs on US exchanges hit a record high of $339 billion, and Reddit was valued at $10 billion, with potential valuations reaching up to $15 billion in an IPO. However, US IPOs dropped significantly, totaling only $26 billion last year. In the fourth quarter, Reddit had an average of 73.1 million daily active unique visitors.
Financial performance and revenues
Reddit reported a net loss of $91 million on revenue of $804 million in 2023, compared to a net loss of around $159 million on revenue of $667 million the previous year. Advance Magazine Publishers Inc., part of Newhouse family publishing empire that owns Conde Nast, is Reddit's largest shareholder. Majority of Reddit's revenues are sourced from advertising, but targeting audiences is increasingly difficult due to passive users and inconsistent engagement patterns. Users often use Reddit without logging in.
Risks and opportunities
Reddit's millions of dedicated users and moderators present both challenges and advantages for the company. Historically, Redditors have had a contentious relationship with the platform, often revolting over various issues. Reddit's dependence on 60,000 unpaid moderators has also been seen as a huge risk for the investors. CEO Steven Huffman stated in a letter included in the filing that Reddit has numerous opportunities to expand both the platform and the business, with advertising as its primary focus.
Future plans involve training AI models
Reddit is in the early stages of allowing third parties to license access to its data which includes training artificial intelligence models. However, its reservations about API pricing has irked third party apps. In January, the company entered into data licensing agreements with a combined contract value of $203 million. Major shareholders of Reddit include COO Jennifer Wong, FMR LLC, and entities affiliated with OpenAI CEO Sam Altman, Tencent Holdings Ltd., Vy Capital, Quiet Capital, and Tacit Capital.
