Reddit's long awaited IPO

In a landmark move, Reddit, the internet's go-to destination for discussions on virtually any topic imaginable, is gearing up for its much-anticipated initial public offering (IPO). The IPO, slated to debut on the New York Stock Exchange under the ticker symbol RDDT, has been met with strong interest from investors and industry observers alike.  

Reddit and its investors are seeking to raise up to a staggering $748 million, eyeing a valuation of $6.5 billion. Even with the platform’s large user base and substantial revenue generation, it has had continuous losses, reporting a net loss of $91 million in 2023. Nonetheless, Reddit's revenue surged to $804 million in that same period, signaling to investors that promising growth prospects are underway.  

What distinguishes Reddit's IPO is its innovative approach to share allocation. The company plans to reserve approximately 1.76 million shares for its dedicated users and moderators who created accounts before January 1, allowing them to directly partake in the offering. Reddit sees these long-time users as core members of their online community and intends to keep them included in the project. Some of these Reddit users may have been involved in the GameStock frenzy a few years ago, so it wouldn't hurt to have them on their side.  Moreover, Reddit intends to offer shares to individual investors through some of the main online brokerages like SoFi and E-Trade, democratizing access to its IPO but raising questions about potential market volatility.  

As investors await Reddit's debut on the stock exchange, they are closely evaluating the company's financial health and growth prospects. Even with its impressive user base and strong revenue generation, Reddit's long history of losses poses a significant challenge. To address these challenges, Reddit is embarking on strategic initiatives in diversifying its revenue streams and building partnerships with other prominent technology players. The company is looking into growing its advertising revenue by maximizing its usage of company data. The platform has also ventured into selling content to fuel artificial intelligence (AI) applications, as highlighted by a recent partnership with Alphabet Inc.'s Google. Reddit's vast repository of user-generated content spanning across thousands of subreddits presents a valuable resource for training AI models and enhancing technological capabilities. By allowing third parties to license access to its data, Reddit not only taps into a new revenue stream but also contributes to the advancement of AI technologies. This move demonstrates Reddit's forward-thinking approach to monetization and the potential to harness the power of data for broader applications beyond its own platform. AI has shaken up the technology landscape and a company social media platform initiating new projects could prove to be very valuable.  

Nevertheless, Reddit faces intense competition from established social media giants and regulatory uncertainties, which could dampen its growth trajectory. Investors must weigh these risks against the platform's potential for innovation and market disruption.  

In essence, Reddit's impending IPO is a pivotal moment in the company’s future and for the social media digital landscape. As one of the largest social media platforms to go public in recent years, Reddit's performance in the public markets will serve as a test for investor sentiment towards other tech companies interested in IPOs. As the platform navigates the complexities of the public markets, investors are about to witness the evolution of one of the internet's most influential platforms. Whether Reddit can translate its vast user base into sustainable profitability remains to be seen, but one thing is certain: the Reddit IPO is set to make waves in the world of technology and finance. 

Update on March 23rd  

Reddit shares soared on the first day of trading this Thursday. Opening up at $47 before closing at $50.44, reflecting a 48% gain from its IPO price with a market capitalization of $9.5 Billion. This new pricing is much closer to Reddit’s $10 Billion valuation in 2021 from private investors such as Fidelity in a favorable TMT market. The second day of trading saw Reddit’s price fall by 9% to settle at 46$, just below its opening price on Thursday, with a market cap of $7.3 Billion. Reddit’s closing price shows a 9.1 price to sales ratio, compared to Facebook’s 9.7 and Snap’s 3.9, a valuation that shows trust in the management’s team for growth and profitability. It will be interesting to see how the markets will continue to evolve with Reddit’s IPO being very much in the center of attention as one of the most anticipated events this year, potentially setting the tone for the next IPOs.  

Investment Banking Team,