Reddit’s share market debut rewards IPO investors. 📈 Last Thursday afternoon Reddit (RDDT) listed on the US share markets at US$47 a share, 38% higher than their IPO price of US$34, raising US$748 million. The list of early investors potentially includes PayPal (PYPL) co-founder Peter Theil, and celebs Jared Leto and Snoop Dogg. OpenAI CEO Sam Altman owns 12.2 million shares giving him 9.1% voting rights, and Vogue’s Condé Nast owner Advance Magazine Publishers holds 33.5% of all Reddit shares. Positive news could see these investors enjoying a big payday.

Reddit’s IPO was four to five times oversubscribed. Like Airbnb (ABNB), Doximity (DOCS) and Rivian (RIVN) before it, Reddit invited some ‘power users’ access to the IPO share price by setting aside an 8% allocation for Reddit’s unpaid moderators, and users with more than 25,000 karma points, as well as some board members and Reddit family and friends. 

But only if they live in the US:

‘I'm going to buy my full allocation, which because I'm a Canadian citizen, is zero shares.’ Newer Al Redditor in r/wallstreetbets/ *

^{* the subreddit behind the 134% GameStop (GME) stock surge in January 2021)}

Reddit’s first week of trading. 💼 On day one, Reddit shares started trading at US$47, then peaked mid-afternoon at US$57.80, ending the day at US$50.44, up 48% above the IPO price - even Cathie Wood bought some. They’ve since dropped then surged again, landing up nearly 31% above their listing price, giving Reddit a market cap of US$9.5 billion.

How does Reddit’s IPO valuation stack up?

Why didn't Reddit list on the Nasdaq? 🤨 While Reddit (RDDT) bucked the Big Tech trend by going public on the NYSE rather than the tech-heavy Nasdaq alongside the ‘Magnificent Seven’, which  includes Meta, the parent of Facebook, Instagram and WhatsApp, choosing to list on the NYSE is consistent with other social media companies. The decision was made by company execs and Reddit’s financial advisors.

Reddit is the largest social media company to go public since 2019. 📊 In December 2021, Reddit initially ‘confidently filed’ paperwork with the SEC (Securities and Exchange Commission) to list on the share markets through an IPO following their August 2021 valuation of US$10 billion. Reddit chose not to list however - a decision that spared them the ‘curse’ encountered by some of the more than 1,000 companies that listed through an IPO that year.

This February after filing for IPO again, Reddit had a valuation of US$6.5 billion. This was small in comparison to other social media companies:

• Facebook’s (now Meta META) had a valuation of US$104 billion at the time of their Nasdaq debut in May 2012
• Snapchat’s (SNAP), which also listed on the NYSE, debuted with a valuation of US$24 billion in March 2017 
• Twitter’s, which has since delisted after being privately purchased by Elon Musk, traded on the NYSE valued at US$18 billion in November 2013 
• Pinterest’s (PINS) was valued at US$10 billion in April 2019 when it debuted on the NYSE

How popular is Reddit? 

Call me loyal. 👨‍💻 Historically, Reddit has been nicknamed the ‘front page of the internet,’ and today the company refers to their platform as being ‘a community of communities’. Reddit has 73 million daily active users (DAUs) - called Redditors. They post 267.5 million times weekly across 100,000 communities, called subreddits. Rather than algorithms deciding what hits the front page, Redditors upvote content, which then becomes more visible to other Redditors. 

Reddit's daily users compare to Facebook’s 2.09 billion DAUs, Twitter’s 237.8 million monetisable mDAUs, and an estimated 500 million - 1 billion people who use Instagram daily, and Pinterest has 498 monthly active users (MAUs).

Reddit was founded in 2005 by two uni roommates, Steve Huffman - who returned to Reddit as CEO in 2015 - and Serena Williams’ husband Alexis Ohanian - who sold his Reddit ownership Condé Nast in 2006 - along with their friend, a ‘wizardy programmer’ Aaron Swartz, who died in January 2013. While once considered by some as the ‘wild west’ of social media  - even called a ‘cesspool’ - it seems Reddit may have grown up:

‘Today, Reddit is a gem of the internet, and a trusted source of news and entertainment for millions of people. It’s one of the last big platforms that feel unmistakably human — messy and rough around the edges, sure, but a place where real people gather to talk about real things, unmediated by algorithms and largely free of mindless engagement bait.’ - Kevin Roose, The New York Times

Reddit stands out as a ‘moderation success story’ too with Roose adding, ‘content moderation saved the company’. Today, Reddit is focussed on empowering their subreddit communities, with their community ambitions including: 

• Increasing financial support for community programs
• Creating more ownership opportunities
• Building economic empowerment
• Democratizing community tools

How does Reddit make money?

While Reddit has ‘lost money every year since its launch in 2005’, it doesn’t have any debt. And like other digital platforms, such as Google (GOOGL, GOOG), Meta, Snapchat, Pinterest, TikTok and X, Reddit makes money from advertisers - in 2023 making around US$800 million: 

‘Advertising is our first business, and advertisers of all sizes have discovered that Reddit is a great place to find high-intent customers that they aren’t able to reach elsewhere. Advertising on Reddit is rapidly evolving, and we are still in the early phases of growing this business.’ - Reddit CEO Steve Huffman

AI licencing deals could bring in US$203 million

Reddit revolt following AI deal with Google. But not everyone was pleased with the news of Reddit’s latest income stream. Both Redditors and US regulators have questioned the platform’s proposal to licence or share Redditors’ posts to help with AI training - in particular, sharing Reddit’s 17 billion posts to train chatbot language models - with some Redditors ‘crying foul’ prior to the IPO. 

An AI licensing deal with Google is said to be worth US$60 million a year, and across the board, generative AI training partnerships has been estimated by Reddit to bring in US$203 million of revenue over the next couple of years. Time will tell, but in the rapidly evolving world of AI discovery, this may be the edge Reddit needs in a world where competing for advertising dollars is tough.

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