Reddit marks impressive entry into stock market as shares surge
Reddit made a powerful entrance on the New York Stock Exchange, with shares closing 48% higher on the first day of trading. The company set its share price at $34 each, which was near the peak of the marketed range. By the close of trading, the shares were valued at $50.44, pushing Reddit's worth over $9 billion. This event marked one of the most significant initial public offerings (IPO) by a social media platform to date.
Evolution from online forum to stock market giant
Established nearly two decades ago, Reddit has transformed into one of the most visited websites globally. It functions as an online forum where over 73 million users, as of December 2023, can participate in discussions about their interests. Despite being free and not generating profit for two decades, Reddit's potential for revenue through advertising and data licensing has led to its billion-dollar valuation.
Reddit's revenue strategy and potential obstacles
In 2017, Reddit underwent substantial visual modifications to make the website more appealing to advertisers. The company's route to profitability seems to be centered around AI models, with companies like OpenAI paying for data from random conversations on the platform. Google reportedly paid Reddit $60 million for scanning nearly two decades of discussions to improve its AI. However, this business model is being examined by regulators like the US Federal Trade Commission (FTC) and faces patent infringement allegations from Nokia.
User base: Reddit's strength and possible risk
In its submission to the US Securities and Exchange Commission (SEC), Reddit recognized its user base as a potential risk factor for shareholders. The company stated, "If we fail to increase or retain our user base or if user engagement declines, our business... and prospects will be harmed." Despite these worries, Reddit's stock market value seems to be on relatively firm ground as long as there is no alternative platform for its users.
Reddit's future earnings: Licensing deals worth $200 million
Reddit has revealed that it has secured licensing deals worth over $200 million for the next two to three years. This income is expected to come from companies interested in accessing data from the platform's extensive range of user conversations. These agreements are part of Reddit's wider strategy for revenue generation, which also includes advertising and making its platform more attractive to advertisers.
