Reddit pops 48% in NYSE debut after selling shares at top of range

Reddit shares surged 48% in Thursday’s IPO, becoming the first for a major social media business since Pinterest in 2019.

The 19-year-old website that hosts millions of online forums priced its IPO on Wednesday at $34 a share, which was above the projected range. Reddit and selling shareholders raised approximately $750 million from the transaction, while the firm received approximately $519 million.

The stock opened at $47 and rose to a high of $57.80, representing a 70% rise at its top for the day. It finished at $50.44, giving the business a market capitalization of approximately $9.5 billion.

Reddit, which trades under the ticker symbol “RDDT,” is testing investor interest in new tech equities following an extended period of low IPO activity. Since the technology boom in late 2021, few venture-backed internet businesses have gone public. Those that have, such as Instacart and Klaviyo last year, have underperformed. Astera Labs, a data center hardware company, surged 72% in its Nasdaq launch on Wednesday, highlighting investor interest in AI-related enterprises.

Reddit’s IPO price was at $6.5 billion, a drop from the company’s private market valuation of $10 billion in 2021, which was a boom year for the internet industry. The atmosphere shifted in 2022, as rising interest rates and growing inflation drove investors away from high-risk assets. Startups responded by laying off employees, lowering valuations, and focusing on profit rather than growth.

Reddit’s annual sales for 2023 increased 20% to $804 million, up from $666.7 million the previous year, according to the company’s prospectus. Last year, the company’s net loss was $90.8 million, which was less than the $158.6 million loss recorded in 2022.

Based on its revenue over the previous four quarters, Reddit’s market capitalization at the IPO gave it a price-to-sales ratio of approximately 8. FactSet reports that Alphabet is valued at 6.1 times revenue, Meta at 9.7, Pinterest at 7.5, and Snap at 3.9 times sales.

Reddit lists X, Discord, Wikipedia, and Amazon’s Twitch streaming service as competitors in its prospectus.

Google has also expanded its collaboration with Reddit, allowing the search engine giant to gain additional access to Reddit data for training AI models and improving its products.

On March 15, Reddit announced that the Federal Trade Commission is launching a nonpublic inquiry “focused on our sale, licensing, or sharing of user-generated content with third parties to train AI models.” Reddit stated that it is “not surprised that the FTC has expressed interest” in the company’s AI-related data licensing arrangements, and that it does not feel it has “engaged in any unfair or deceptive trade practice.”

Reddit was created in 2005 by tech entrepreneurs Alexis Ohanian and Steve Huffman, the CEO. Existing stakeholders, including Huffman, sold a total of 6.7 million shares in the IPO.

As part of the IPO, Reddit offered some of its top moderators and users, known as Redditors, the opportunity to purchase shares via a directed-share program. Companies such as Airbnb, Doximity, and Rivian have implemented similar initiatives to reward active users and consumers.

“I hope they believe in and support Reddit,” Huffman told CNBC in an interview on Thursday. “But the idea is simply to get them into the deal. “Like any professional investor.”

Redditors have expressed doubt about the IPO, citing both the company’s financials and its frequently strained relationship with moderators. Huffman noted the contentious subreddit Wallstreetbets, which contributed to the rise of meme stocks such as GameStop.

“That’s the beautiful thing about Reddit, is that they tell it like it is,” Huffman told me. “But remember, they’re doing it on Reddit. It’s a platform they enjoy, and it serves as their online home.”

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Reddit’s significant shareholders include OpenAI CEO Sam Altman, Tencent, and Advance Magazine Publishers, which owns publishing powerhouse Condé Nast. Altman’s share in the company was worth more than $400 million when the stock started trading. Altman spearheaded Reddit’s $50 million financing round in 2014 and served on the board from 2015 until 2022.