Reddit Stock shares soared by 48% on Thursday during their market debut, making it the first significant social media IPO since Pinterest’s in 2019.
The 19-year-old website, which hosts numerous online communities, set its initial public offering at $34 per share on Wednesday, hitting the top of its expected range. The IPO raised about $750 million, with Reddit itself collecting around $519 million.
The Reddit stock opened at $47, peaked at $57.80—a 70% rise at its highest point—and closed the day at $50.44, giving Reddit an estimated market value of $9.5 billion.
Reddit stock, now trading under the ticker symbol “RDDT,” is gauging investor interest in tech stocks after a long period of IPO inactivity. Since the tech boom peaked in late 2021, only a few venture-backed tech companies have gone public, with recent offerings like Instacart and Klaviyo underperforming. On Wednesday, Astera Labs, a company specializing in data center hardware, debuted on Nasdaq, with shares jumping 72%, reflecting investor enthusiasm for companies tied to the rise of artificial intelligence.
At its IPO price, Reddit was valued at around $6.5 billion, lower than its $10 billion private market valuation in 2021, a particularly strong year for tech. However, in 2022, the economic landscape shifted as rising interest rates and inflation pushed investors away from high-risk ventures. In response, many startups cut jobs, reduced their valuations, and prioritized profitability over rapid growth.
Reddit’s revenue for 2023 grew by 20%, reaching $804 million compared to $666.7 million the previous year, according to its prospectus. The company reported a net loss of $90.8 million last year, a significant improvement from the $158.6 million loss in 2022.
Based on its revenue from the past four quarters, Reddit’s IPO gave it a price-to-sales ratio of about 8. By comparison, Alphabet trades at 6.1 times revenue, Meta at 9.7, Pinterest at 7.5, and Snap at 3.9, according to data from FactSet.
Reddit identifies several competitors in its prospectus, including X (formerly Twitter), Discord, Wikipedia, and Amazon’s Twitch streaming service.
The company is also focusing on data licensing as a potential revenue stream. Reddit disclosed that it has secured data licensing deals worth a total of $203 million, with contract durations ranging from two to three years. In 2024, Reddit expects to recognize approximately $66.4 million in revenue from these deals.
Reddit has also expanded its partnership with Google, granting the search giant greater access to Reddit’s data to train AI models and improve its products.
In March, Reddit revealed that the Federal Trade Commission (FTC) is conducting a nonpublic investigation into the company’s sale and licensing of user-generated content to train AI models. While Reddit stated it was unsurprised by the FTC’s inquiry, it believes it has not engaged in any unfair or deceptive practices.
Founded in 2005 by Alexis Ohanian and current CEO Steve Huffman, Reddit saw some of its stakeholders, including Huffman, sell a combined 6.7 million shares in the IPO.
Additionally, Reddit offered some of its top moderators and users, known as Redditors, the chance to buy shares through a directed-share program, a strategy that companies like Airbnb, Doximity, and Rivian have used to reward their most loyal users and customers.
In an interview with CNBC, Huffman expressed hope that Redditors would support the company by participating in the IPO. However, some Redditors have voiced skepticism due to concerns over Reddit’s financials and its occasionally strained relationship with moderators. Huffman acknowledged these concerns, noting the platform’s candid culture, referencing subreddits like WallStreetBets, which played a significant role in the meme stock phenomenon surrounding companies like GameStop.
Key investors in Reddit include OpenAI CEO Sam Altman, Tencent, and Advance Magazine Publishers, the parent company of Condé Nast. Before the stock began trading, Altman’s stake was valued at over $400 million, having led a $50 million investment in Reddit in 2014 and serving on its board from 2015 to 2022.
