Reddit shares soared as much as 70% in their debut Thursday in the first initial public offering for a major social media company since Pinterest it was released in 2019.
The 19-year-old site that hosts millions of online forums priced its IPO on Wednesday at $34 a share, at the top of the expected range. Reddit and the selling shareholders raised about $750 million from the offering, with the company taking in about $519 million.
The stock opened at $47 and hit a high of $57.80. At Thursday’s peak, the company had a market capitalization of about $10.9 billion. Reddit shares then fell to $48.64 about half an hour after they began trading, giving the company a market capitalization of about $7.9 billion.
Trading under the symbol “RDDT,” Reddit is testing investor appetite for new tech stocks after an extended IPO drought. Since the peak of the tech boom in late 2021, almost no venture-backed tech companies have gone public, and those that have — like Instacart and Klaviyo last year — have been subdued. On Wednesday, the data center hardware company Astera Labs made its public market debut on the Nasdaq and saw its shares soar 72%, underscoring investor enthusiasm for businesses linked to the artificial intelligence boom.
At the IPO price, Reddit was valued at about $6.5 billion, a haircut from the company’s private market valuation of $10 billion in 2021, which has been a boom year for the tech industry. The mood changed in 2022 as rising interest rates and surging inflation pushed investors away from riskier assets. Startups have responded by making layoffs, slashing valuations and shifting their focus to profit over growth.
Reddit’s annual sales for 2023 rose 20% to $804 million from $666.7 million a year earlier, the company said in its prospectus. The company posted a net loss of $90.8 million last year, down from losses of $158.6 million in 2022.
Based on its revenue over the last four quarters, Reddit’s IPO market cap gave it a price-to-sales ratio of about 8. Alphabet trades at 6.1 times earnings, After has a multiple of 9.7, Pinterest is at 7.5 and Break it trades for 3.9 times sales, according to FactSet.
In addition to these companies, Reddit also counts X, Discord, Wikipedia and of Amazon Update the Twitch streaming service as competitors in their newsletter.
Reddit is betting that data licensing could become a major source of revenue and said in its filing that it has entered into “certain data licensing arrangements with an aggregate contract value of $203.0 million and terms ranging from two to three years.” This year, Reddit said it plans to recognize about $66.4 million in revenue as part of data licensing deals.
Google has also entered into an expanded partnership with Reddit, allowing the search giant to gain more access to Reddit data to train AI models and improve its products.
Reddit revealed on March 15 that the Federal Trade Commission is conducting a non-public investigation “focused on the sale, licensing, or sharing of user-generated content with third parties to train artificial intelligence models.” Reddit said it is “not surprised that the FTC has expressed interest” in the company’s AI-related data licensing practices and that it does not believe it has “engaged in any unfair or deceptive trade practices.”
Reddit was founded in 2005 by tech entrepreneurs Alexis Ohanian and Steve Huffman, the company’s CEO. Existing stakeholders, including Huffman, sold a total of 6.7 million shares in the IPO.
As part of the IPO, Reddit gave some of its top moderators and users, known as Redditors, the opportunity to buy shares through a directed share program. Companies like Airbnb, Skill and Rivian have used similar programs to reward their power users and customers.
“I hope they believe in Reddit and support Reddit,” Huffman told CNBC in an interview Thursday. “But the goal is just to get them on the deal. Just like any professional investor.”
Redditors have expressed skepticism about the IPO, both because of the company’s finances and its often troubled relationship with moderators. Huffman said he recognizes that reality and acknowledged the controversial Wallstreetbets subreddit, which helped fuel meme shares like GameStop.
“That’s the beautiful thing about Reddit, is they tell it like it is,” Huffman said. “But you have to remember they’re doing this on Reddit. It’s a platform they love, it’s their home on the Internet.”
OpenAI CEO Sam Altman is one of Reddit’s major shareholders along with Tencent and Advance Magazine Publishers, the parent company of publishing giant Condé Nast. Altman’s stake in the company was worth more than $400 million before the stock began trading. Altman led a $50 million funding round at Reddit in 2014 and served on its board from 2015 to 2022.
I’M WATCHING: Investors are watching Reddit’s IPO ‘very closely’.