Reddit targets valuation as high as 6.$B

Reddit's long-awaited U.S. IPO valuation targets as high as $6.4B

The Reddit logo can be seen in this illustration taken on November 7, 2022.

Reddit's U.S. initial public offering (IPO) is targeting a valuation of up to $6.4 billion, the social media platform said on Monday, shaping up to be one of the most anticipated stock market debuts in the past few years.

The company and some of its existing investors plan to sell about 22 million shares at a price range of $31 to $34 per share to raise more than $748 million.

The IPO is a major litmus test for investor interest in new stock listings and will come more than two years after the company began preparing to go public. The recovery in the IPO market has been uneven so far this year.

On a fully diluted basis, the target valuation is lower than Reddit's $10 billion valuation following its 2021 funding round.

After Reddit launched in 2005, it became one of the cornerstones of social media culture. Its iconic logo (an alien with an orange background) is one of the most recognized symbols on the web.

read: Reddit plans IPO in second half of 2023 – The Information

Its 100,000 online forums, called “subreddits,” allow for conversations on topics “from the sublime to the ridiculous, the trivial to the existential, the hilarious to the serious,” said co-founder Steve Huffman.

In the letter, Huffman wrote that he himself reached out to one of the Reddit subreddits for help with alcohol addiction. In 2012, former U.S. President Barack Obama also conducted an “AMA” (“Ask Me Anything”), Internet lingo, to the site's users.

The “Meme-stock” legend of 2021

The company's influential community is famous for the “meme-stock” saga of 2021, when several retail investors collaborated on Reddit's “wallstreetbets” forum to buy shares of highly shorted companies such as video game retailer GameStop.

The incident hammered hedge funds that had shorted the stocks and made retail traders a force to be reckoned with. It also appears in the 2023 film starring Seth Rogen.

To gain access to the retail market, Reddit reserves 8% of the total shares issued for qualified users and moderators on its platform, certain board members, and friends and family of employees and directors.

Such buyers would not be in a lock-up period and could choose to sell their shares on the first day of trading, which could increase price volatility.

“This is a unique IPO, and what happens will be driven in part by the buzz on the platform,” said Reena Aggarwal, director of the Psaros Center for Financial Markets and Policy at Georgetown University.

Weak initial public offerings from Arm Holdings, Instacart and Birkenstock in late 2023 dashed hopes for an IPO recovery as U.S. stocks shook off a severe sell-off the previous year.

Arm’s shares have more than doubled since its IPO. Instacart has lagged the S&P 500, while Birkenstock has been roughly in line with the index.

Morgan Stanley, Goldman Sachs, J.P. Morgan and BofA Securities are the lead underwriters on the offering. Reddit is expected to list on the New York Stock Exchange under the trading symbol “RDDT.”

Limited commercial success

Although Reddit enjoys cult status among its followers, its success lags behind that of contemporaries Meta Platforms Facebook and Twitter (now known as X).

The company has never turned a profit and said in earlier filings that it was “in the early stages of monetizing the business.”

Reddit said it had an average of 73.1 million daily active “unique users” in the three months ended Dec. 31, 2023, or users who used its platform at least once a day.

The company's lax approach to content moderation has also been a sticking point for advertisers.

It relies on volunteers from its user base to moderate content posted on its forums. Moderators can decide to step away from their duties at any time, such as in 2023, when several moderators resigned in protest of Reddit's decision to charge third-party app developers for access to their data.

“There's no question that as a public company, Reddit will be subject to more scrutiny in terms of its platform, the content posted on it and how it's monitored,” Agarwal said.

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“Regulators and policymakers are very concerned about these issues.”

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