The social networking company Reddit filed the IPO prospectus with the Securities and Exchange Commission on Thursday after a multi-year review. The company plans to trade on the New York Stock Exchange under the symbol “RDDT.”
Its market debut, expected in March, will be the first major technology initial public offering of the year. It’s the first public entry on social media since then Pinterest released in 2019.
Reddit said it had $804 million in annual sales for 2023, up 20 percent from the $666.7 million it brought in the year before, according to the filing. The social media company’s core business is based on online advertising sales from its website and mobile app.
The company, founded in 2005 by tech entrepreneurs Alexis Ohanian and Steve Huffman, said it has made net losses since its inception. It reported a net loss of $90.8 million for the year ended Dec. 31, 2023, compared with a net loss of $158.6 million a year earlier.
Reddit is one of the most visited websites in the US, according to analytics firm Semrush, but has struggled to build an online advertising business comparable to that of tech giants such as parent Facebook After and parent Google Alphabet.
Reddit has more than 100,000 communities, 73 million average daily active uniques, or DAUq, and 267 million average weekly active uniques, according to the filing. As of the fourth quarter of 2023, Reddit’s US average revenue per user, or ARPU, was $5.51, down from $5.92 a year earlier. The company’s global ARPU was $3.42, which was down 2% year over year from $3.49.
Reddit said that by 2027 it estimates the “total global addressable market from advertising, excluding China and Russia, will be $1.4 trillion.” Reddit said the current market for targeted advertising is $1.0 trillion, excluding China and Russia.
The company is building on its search capabilities and plans to “more fully address the $750 billion opportunity in search advertising that S&P Global Market Intelligence estimates the market will be in 2027.”
Reddit said it plans to use AI to improve its advertising operations and that it expects to open up new revenue channels by offering tools and incentives to “drive continuous creation, improvements and commerce.”
It is also in the early stages of developing and monetizing a data licensing business that will allow third parties to access and search data on its platform.
For example, Google on On Thursday it announced an expanded partnership with Reddit that will give the search giant access to the company’s data to, among other uses, train its artificial intelligence models.
In June, several prominent Reddit moderators locked down the subreddit as part of a shutdown to protest the company’s decision to raise the price some third-party developers pay to use its API, or API, depending on their usage. At the time, Reddit said the price change was necessary because many big tech companies were using data to train large language models.
“In January 2024, we entered into certain data licensing agreements with an aggregate contract value of $203.0 million and terms ranging from two to three years,” Reddit said of the data licensing activity. “We expect to recognize at least $66.4 million in revenue during the year ending December 31, 2024 and the balance thereafter.”
Reddit appears to be exploring a business strategy similar to its own Roblox, which derives most of its revenue from digital sales on its social gaming platform and online retailer eBay. The company wants to introduce more features to create a user economy that could include games, according to the filing. Reddit said there are currently informal exchanges of physical and digital goods and services that might create another line of revenue.
Reddit will offer three classes of shares with different voting shares. Class A shares will carry one vote per share. Class B shares will carry 10 votes per share and may be converted at any time into one Class A share. Class C shares shall have no voting rights.
Reddit said its non-employee moderators, known as Redditors, can participate in the company’s IPO offering through its “directed equity program.” Because of this, Reddit said there is a possibility that “individual investors, retail or otherwise, will constitute a larger percentage of the investors participating in this offering than is typical for an initial public offering.” Reddit said it averaged more than 60,000 daily active moderators in December 2023.
“These factors could cause volatility in the market price of our Class A common stock,” the company warned.
As for the risks, Reddit said its daily active unique figures “may fluctuate or decline in one or more markets from time to time due to various factors.”
“For example, although we saw increased growth in our user base during the COVID-19 pandemic, we experienced lower levels of DAUq growth and a decline in DAUq as the effects of the COVID-19 pandemic subsided,” the filing said. “DAUq has also declined in the past during periods following usage peaks around certain global events, such as the start of the conflict between Russia and Ukraine in the quarter ending March 31, 2022, and cultural trends, including video game releases such as x Elden Ring in the three months ending March 31, 2022 and traffic related to r/wallstreetbets in the three months ending March 31, 2021.”
Reddit first filed a confidential draft of its public offering prospectus with the Securities and Exchange Commission in December 2021. The company has 2,013 employees as of December 31, 2023, which was up from 1,942 a year earlier.
Reddit has raised about $1.3 billion in funding and has a subsequent valuation of $10 billion, according to deal tracker PitchBook. Publishing giant Condé Nast bought Reddit in 2006. Reddit was spun off from Conde Nast’s parent company, Advance Magazine Publishers, in 2011.
Advance now holds 34% of the voting power. Other notable shareholders include Tencent and Sam Altman, CEO of startup OpenAI.
I’m watching: Reddit is a litmus test for investor appetite for non-AI stuff.