JULIANNE RUDKIN—Reddit, the online forum, officially filed for its Initial Public Offering (“IPO”) last month under the ticker symbol “RDDT,” making it one of the largest social media companies to go public since Snap Inc. in 2017. The journey marks a pivotal moment in the company’s history and a significant test for the US stock market’s reception of technology startups backed by venture capital in 2024. With a public filing that highlights a net loss of $90.8 million for 2023 on revenues of $804 million, up from a net loss of $158.5 million on revenues of $666.7 million the previous year, Reddit’s financial performance showcases growth amidst ongoing challenges in profitability.
A notable aspect of Reddit’s IPO is the involvement of Sam Altman, CEO of OpenAI, who is the third-largest shareholder holding 8.7 percent of Reddit’s stock, which includes 4.5 percent Class A shares and 9.3 percent Class B shares. Altman’s involvement underscores the intertwining of artificial intelligence (“AI”) with Reddit’s future growth strategies. The company’s S-1 filing also reveals a strategic move towards AI, with data licensing agreements totaling $203 million, including one with Google, aimed at enhancing AI technologies. This partnership, along with the potential for similar agreements with other AI providers, could pave the way for new revenue streams for Reddit, staking its position in the AI-driven future.
Additionally, Reddit’s approach to its IPO is unique, with plans to reserve shares for 75,000 of its users, allowing them a chance to invest in the company at the IPO price—a privilege typically reserved for large institutional investors. This move reflects Reddit’s community-centric model and may help generate goodwill with current users. However, by allowing Reddit users to buy into the IPO, there is potential for Redditors’ collective action to manipulate the stock, becoming another “meme stock,” which could either go really well or really poorly for Reddit, considering r/WallStreetBets was listed as a risk factor in the IPO. There is also talk among users of shorting Reddit stock as soon as it becomes available, which demonstrates the controversial relationship between Reddit’s management and its user base, with some users dissatisfied with the platform’s recent decisions regarding increasing fees for use of its API, harming developers, and selling access to user-generated content to Google.
Despite its financial losses and the challenge of monetizing its platform effectively against competitors, Reddit’s loyal user base and role in cultural phenomena, such as the meme stock rallies (remember GameStop), position it uniquely in the social media landscape. With more than 500 million visitors in December 2023 alone and a growing daily active user base, Reddit’s potential for further growth, particularly in advertising revenue, remains significant, with 98% of the company’s revenues coming from ads. Reddit has also revealed that it expects its Class A common stock to be priced between $31 and $34 a share, meaning Reddit expects it will raise somewhere around $473 million to $520 million for the company in its IPO.
As Reddit navigates the public markets with its AI-focused strategy and unique community engagement approaches, its IPO not only tests the waters for Reddit’s valuation and market acceptance but also serves as an indicator of the broader tech industry’s potential for innovation and profitability in the era of AI.
