The company’s stock price surged by almost 70% from its initial public offering (IPO), potentially earning Condé Nast’s parent company nearly $1.4 billion
Reddit’s (RDDT.N) shares closed their first day of trading in New York up 48%, indicating a potential resurgence in investor interest in initial public offerings (IPOs) of promising yet unprofitable companies.
The closing price was 48% higher than the initial offer prices, valuing Reddit at over $9 billion during its highly anticipated debut. The stock reached a peak of $57.80 per share, a 70% increase, before settling at $50.44 by the end of the day.
Initially priced at $34 per share, the San Francisco-based company’s IPO resulted in a market value of $6.4 billion, with Reddit and its selling shareholders raising $748 million.
Reddit’s IPO, which had been anticipated for over two years, faced delays after confidentially filing in December 2021, due to stock market turbulence. Despite this, its current valuation, though slightly lower, remains substantial, as it dropped from $10 billion in 2021 during a private funding round.
Reddit’s strong market debut promises a significant windfall for its largest shareholder, Advance Publications. The parent company of Condé Nast, which publishes renowned magazines like the New Yorker, Vogue, and Wired, stands to gain up to $1.4 billion from the IPO. Advance purchased Reddit for $10 million only 18 months after its inception.
Steve Huffman, Reddit’s co-founder and CEO, received a compensation package valued at $193 million last year. Alexis Ohanian, another co-founder who has been the public face of the company in contrast to Huffman’s more behind-the-scenes technical role, is not mentioned in the company’s filings with US financial regulators.
Reddit’s other significant shareholders include the Chinese gaming company Tencent, which holds an 11% stake following its leadership in a $300 million investment round in 2019; Fidelity, which holds 9.5% from multiple investments in the company; and Sam Altman, the CEO of OpenAI, who owns 8.7% after investing in 2014. Reddit joined the inaugural class of the prestigious Y Combinator startup accelerator program shortly after its establishment in 2005. Altman subsequently served as the president of Y Combinator.
Experts believe that with few major tech IPOs in recent years, the excitement surrounding technology stocks will likely give Reddit a strong start on the market. However, Julian Klymochko, CEO of Accelerate Financial Technologies, stated that investors will closely monitor the market in the coming weeks.
“If Reddit performs poorly, it could have a negative impact on the IPO market,” Klymochko explained. “Many companies may decide to delay their IPO plans.”
Since its inception in 2005, Reddit has become a cornerstone of social media culture. Its logo, featuring an alien head on an orange background, is one of the most recognizable symbols on the internet. The company has long used the tagline “The front page of the internet.”
Its 100,000 online forums, known as “subreddits,” provide platforms for discussions ranging from “the sublime to the ridiculous, the trivial to the existential, the comic to the serious,” as stated by Huffman.
Huffman himself shared in his letter that he sought help to quit drinking from one of the subreddits. In 2012, former US President Barack Obama also participated in an “AMA” (“ask me anything”), an internet term for an interview, with the site’s users.
Despite its revered status in the social media realm, Reddit has struggled to match the success of its larger competitors, such as Meta’s Facebook and Elon Musk’s X. According to its filings, Reddit boasts approximately 73 million unique daily visitors. In contrast, Facebook reports that 2 billion people log into its app every day.
As part of its strategy to reward its user base, Reddit has set aside 8% of the shares for eligible users, moderators, specific board members, as well as friends and family members of its employees and directors.
The company has stated that it is “in the early stages of monetizing [its] business” and has not yet achieved an annual profit. Analysts noted that investors would closely examine its plan to achieve profitability.
“The real focus will be after the first earnings call – where are they headed, what are the results looking like, what changes are they going to make,” said Reena Aggarwal, director of the Georgetown University Psaros Center for Financial Markets and Policy.
