Reddit pops on IPO; shares soar as much as 70% in NYSE debut

Reddit made a market debut on the New York Stock Exchange Thursday sending its shares soaring by a whopping 70%, marking an impressive entry into the public market. By the closing bell, Reddit’s shares ended up 48%, signaling a potential resurgence in investor interest in IPOs of promising yet unprofitable companies.

Despite its history of annual losses since its inception in 2005, Reddit managed to captivate investors by positioning its platform as a playground for AI development, thanks to a lucrative $60 million AI content licensing deal with Google.

Priced at $34 a share, the 19-year-old social media platform, known for its financial struggles, defied expectations by opening trading at $47 per share, a staggering 38% above its IPO price. The momentum only accelerated from there, propelling shares to touch the $57 mark.

This surge marks a significant milestone for Reddit, which became the first major social media company to go public since Pinterest’s IPO back in 2019. With its promising performance on its debut, Reddit is poised to capture the attention of both Wall Street and Main Street investors alike.

In a post on X (formerly Twitter), Reddit co-founder Alexis Ohanian said:

“We did it, mom.” 

https://twitter.com/alexisohanian/status/1770806673453601155

Although Reddit primarily depends on advertising for the bulk of its revenue stream, the company has been highlighting artificial intelligence (AI) as a key growth avenue during its IPO marketing roadshow. However, Reddit’s recent disclosure revealed that the U.S. Federal Trade Commission (FTC) is investigating its AI data licensing agreements.

Jen Wong, Reddit’s Chief Operations Officer, emphasized the company’s growth-oriented approach, stating, “At the core, we are a growth company. Achieving our mission means that we want to grow users and community.” This assertion underscores Reddit’s commitment to expanding its user base and fostering community engagement as it navigates the complexities of its AI initiatives amid regulatory scrutiny.

On Wednesday, Bloomberg reported that a substantial 22 million shares were offloaded by shareholders at $34 each, pegging Reddit’s fully diluted valuation at a formidable $6.4 billion. However, this figure marks a significant drop from its lofty $10 billion valuation attained during a 2021 funding round.

A unique aspect of Reddit’s offering is its allocation of approximately 8% of total shares to qualified users, moderators, board members, and associates, a move aimed at fostering a sense of community ownership within its ecosystem.

Leading the charge in this landmark event are financial heavyweights including Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., and Bank of America Corp., steering Reddit’s shares under the ticker symbol “RDDT.”

The journey to this public listing has been a long and winding road for Reddit, spanning over two years since its confidential IPO filing back in December 2021. Economic headwinds caused by the Fed’s actions prompted delays, but now, the stage is set for Reddit’s moment in the spotlight.

Meanwhile, Reddit’s IPO outshines notable offerings from tech luminaries like Instacart and Klaviyo Inc. in 2023, signaling a resurgence in IPO activity. With $8.7 billion already raised through IPOs on US exchanges this year, representing a 150% surge from the same period last year, Reddit’s splashy market debut is poised to make waves in the tech investment landscape.

Founded in 2005 by Alexis Ohanian, Reddit has transformed into a social news aggregation powerhouse, attracting billions in monthly traffic. As it prepares for its IPO, Reddit’s journey exemplifies the resilience and dynamism of tech startups in the ever-evolving landscape of digital innovation.