After years of being stranded, Reddit, the American version of Tieba, plans to conduct an initial public offering (IPO) on the New York Stock Exchange under the stock code RDDT.
On March 11th, Reddit announced more details and plans to raise up to $748 million through an IPO. In this way, Reddit will become one of the largest IPOs of the US stock market so far this year, and also the first IPO of a social media company since 2019.
Will become the largest IPO of the year to date
According to the latest document submitted to the US Securities and Exchange Commission (SEC) on Monday, social media platform Reddit (RDDT. US) and its investors are seeking financing of up to $748 million. Reddit stated that the company and some existing shareholders plan to sell 22 million shares at a price of $31-34 per share. If calculated based on the highest pricing of $34 and nearly 159 million outstanding shares, its market value will reach $5.4 billion. After fully diluting employee stock options and restricted shares, the valuation will reach approximately $6.4 billion.
According to the documents submitted by Reddit, this IPO is led by Morgan Stanley, Goldman Sachs Group, JPMorgan Chase, and Bank of America. According to insiders, specifically, Reddit plans to finalize its listing price on March 20th and go public on March 21st. Reddit did not provide a response on this date.
In terms of performance, Reddit's losses have significantly narrowed. In a document submitted in February, the company stated that in the fourth quarter of last year, its website had a daily active independent traffic of 73.1 million, with a 2023 revenue of $804 million and a net loss of $91 million, compared to the previous year's revenue of $667 million and a net loss of approximately $159 million.
In terms of profit models, early Reddit also resisted advertising and attempted to generate revenue through innovative means. But now, the company's main source of revenue is third-party advertising. In addition, data licensing, user subscriptions, and paid products are also sources of Reddit's revenue.
In response, independent stock research firm New Structures recently released a report comparing Reddit's listing to a "return to junk IPOs.". "Reddit may never be able to monetize its platform without angering users, and its entire business model is built on user generated content. This puts Reddit in a dilemma of either making money or pleasing users," said David Trainer, CEO of the agency
However, Steven Huffman, co-founder and CEO of Reddit, stated that the company has many opportunities to develop its platform and business. "Advertising is our top priority business, and advertisers of all sizes have found Reddit to be a great place to look for potential potential potential customers who they usually cannot reach elsewhere." He said, "Advertising on Reddit is rapidly developing, and we are still in the early stages of developing this business."
Reddit is also supported by well-known institutions and investors. The prospectus shows that the company's largest shareholders include Tencent and OpenAI CEO Sam Altman. Tencent is the second largest shareholder, and Ultraman is the third largest shareholder.
In addition, under the trend of artificial intelligence (AI), Reddit's layout in this field has also received attention from investors. Reddit stated that it is still in the early stages of allowing third-party access to platform data, including training AI models. The company signed a data licensing agreement in January, with a total contract value of 203 million US dollars and a term ranging from 2 to 3 years. The file shows that Reddit expects to generate at least $66.4 million in revenue from these agreements this year. In addition, Reddit has announced an agreement with Alphabet's Google to allow Google's AI products to use Reddit data to improve their technology.
Individual investors are an uncertain factor
In 2021, Reddit gained fame due to retail investors forcing the Wall Street War. As time passes, the individual investors who achieved Reddit at that time may also become uncertain factors after its listing.
According to insiders, Reddit will reserve 8%, or approximately 1.76 million shares, in its IPO for users and moderators who create accounts before January 1st, as well as some board members, employees, and friends and family members of directors to purchase. According to Reddit's filing with the SEC in February, these stocks are not subject to a six-month lockdown period, which means retail investors can sell their stocks on the first day of trading.
Earlier this month, some of Reddit's most active users, Redditors, also found a message when logging into their accounts, asking if they wanted to hold shares in Reddit in an IPO. These users must indicate before March 5th whether they are interested in purchasing stocks at the same price as institutional investors. In the latest email sent to Redditor, the company also stated that Redditor must now complete the application by 11:59 pm on March 18th to create a brokerage account with a cooperating bank and transfer funds to the account to pay for stock purchases.
Reddit's Wall Street Bets forum has approximately 15 million users. In 2021, the Wall Street Bets forum sparked a frenzy of concept stocks among retail investors in the US stock market, pushing stocks such as Game Station (GME. US) and AMC Cinema (AMC. US) to soar by short selling Wall Street.
But now, when it comes to Reddit itself, retail investors have different opinions on its prospects. Some anonymous retail investors claim that their IPO is a "mistake" or predict that stocks will plummet, while others express interest in purchasing IPO stocks. Last week, thousands of Wall Street Bets forum users voted in favor of a post about short selling Reddit stocks when they began trading. Their reasons are diverse, from the company's lack of profitability to concerns about competition. A user wrote, "To be honest, I don't believe it will succeed. Too many social media companies are struggling for a few dollars in profit."
Reddit also anticipated this situation and mentioned the risks posed by users in its IPO documents. "Considering Reddit's widespread popularity and brand awareness, including the popularity of the Reddit section/wallstreetbeds among retail investors, stocks may experience extreme volatility... If you are unable to sell stocks at or above the issue price, you may lose all or part of your investment," Reddit warned in the document.
However, although users enjoy complaining about Reddit, the number of users on the website continues to grow. In the last quarter of 2023, daily active independent users increased by 27%, recording the fastest growth in the past seven quarters. Last quarter, the platform had 267.5 million weekly active users. By comparison, the active users of the popular chatbot ChatGPT are approximately 100 million. According to Similarweb, Reddit is one of the top 10 most visited websites in the United States.
Matthew Kennedy, senior strategist of IPO research company Renaissance Capital, said that Reddit is "a unique asset and a very popular part of the Internet community. I don't think Reddit will die when it has reliable users." He also observed that most of Reddit's users are short of the company's IPO, but thought that "for such a stock, anything can happen".
It is worth mentioning that Reddit is not the first company to provide users with such stock purchase incentives. When Airbnb went public in 2020, it offered some American landlords the option to purchase stocks at an IPO price of $68 per share. After going public, the stock quickly soared to $146 and is currently worth $163. Uber also offered a targeted stock program in 2019, where certain drivers can purchase stocks for $45. Although the opening price of the stock was ultimately lower than the IPO price of $42 and briefly dropped to $20, the stock price has now rebounded to $77.5.