Reddit has released more information regarding their high-profile IPO, which is anticipated to be one of the biggest of the year. The company, along with several existing shareholders, expect to raise upwards of $748 million (£571 million). They plan to put up for sale 22 million shares, priced individually between $31 and $34, according to the firm’s official documentation submitted on Monday. Of these shares, the company will sell approximately 15.3 million, while the remaining will be offered by investors – namely Reddit employees.
Assuming they achieve the upper pricing bracket, Reddit, noted for user participation in the 2021 meme stock phenomenon, would achieve a market capitalisation of $5.4 billion (£4.15 billion), corresponding to the expected 158.98 million shares in circulation. This valuation could reach an estimated $6.4 billion (£4.9 billion), when factoring in employee stock options and restricted stock units, as indicated in their filings to the US Securities and Exchange Commission.
Around 8% of shares in the IPO will be allocated to Reddit users and moderators who created accounts before the start of this year, including specific board members, employees and family members. These shares will not be bound by a lock-up period and can be sold on day one of trading. The offering is being overseen by Morgan Stanley, Goldman Sachs, JPMorgan Chase, and Bank of America and Reddit has indicated an aspiration for their shares to be traded on the New York Stock Exchange using the ticker, RDDT.
The journey of Reddit, spanning over two years, towards being publicly listed encapsulates the volatile nature of the market. Their covert filing in 2021 coincided with a record-breaking year for US exchange IPOs, totaling $339 billion (£259 billion), according to Bloomberg data. That year, Reddit’s valuation reached $10 billion (£7.7 billion) during a fundraise. However, US IPOs experienced a significant slump last year, only accruing $26 billion (£20 billion), as per available data. In January, early feedback from prospective IPO investors suggested Reddit should aim for a minimum valuation of $5 billion (£3.8 billion), according to a Bloomberg News report.
The company Reddit is a notable addition to the year’s lineup of newly listed and soon-to-be public companies. Amer Sports Inc. marked the largest of these listings with a $1.57 billion offering in January. Meanwhile, Astera Labs, an artificial intelligence focussed software creator, declared in its Friday submission that it aims to garner up to $534 million in its IPO, which is expected to follow Reddit’s.
Reddit’s IPO is keenly awaited by prospective listing contenders, including Microsoft-supported data security startup Rubrik and the healthcare payment firm Waystar Technologies. These deliberations come in the wake of a slew of US listings, including the semiconductor design company Arm Holdings PLC’s $5.23 billion offering in September, which fell short on reviving market enthusiasm.
Established in 2005, Reddit witnessed an average daily user traffic of 73.1 million unique visitors during the last quarter, as per its filings. The company registered a net loss of $91 million on a revenue of $804 million in 2023, compared to a net loss of approximately $159 million on a turnover of $667 million the previous year.
The majority shareholder of Reddit is Advance Magazine Publishers Inc., which is part of the Newhouse family’s publishing empire controlling Conde Nast. Conde Nast acquired Reddit in 2006 and hived it off in 2011.
According to Reddit, the millions of committed users and moderators they have can be both a risk and an asset. There has been a historically confrontational relationship between Reddit and its users due to issues ranging from platform racism to executive hiring decisions.
Members of the popular WallStreetBets forum, boasting around 15 million users and known for propagating meme stocks such as GameStop, chose to support a forum post discussing shorting Reddit stock when it commences trade. The reasons cited ranged from the absence of profit to competition concerns.
Reddit’s co-founder & CEO Steven Huffman stated in an enclosed letter in its filings that there’s enormous potential for the company to cultivate both its platform and the business. He highlighted that their primary venture is advertising and that Reddit provided a unique platform to advertisers of all sizes looking to connect with high-intent consumers they were unable to reach before, noting that Reddit’s advertising is advancing at a rapid pace and they’re still in its growth phase.
Reddit has recently initiated plans to allow third-party entities to license data from its platform. Utilising this data is part of the process for training artificial intelligence models. Starting in January, Reddit began establishing licensing agreements of this nature, amounting to a total contract value of $203 million. The agreements, set over a period of two to three years, are projected to generate a minimum revenue of $66.4 million for this year.
The company has notably secured a partnership with Google, providing their AI products with access to Reddit’s data. This assists Google in enhancing their technology since extensive human-created content is vital for refining large language models.
Reddit’s offerings indicate that founder Huffman will retain 3.3% of voting power subsequent to them. This is inclusive of Class B shares, each providing 10 votes in contrast to the single vote per Class A share available in the IPO. Huffman maintains a voting representative agreement with Advance.
High-ranking stakeholders of Reddit include Jennifer Wong, the Chief Operating Officer, alongside FMR LLC and parties connected to Sam Altman, the CEO of OpenAI. Other invested entities include Tencent Holdings Ltd., Vy Capital, Quiet Capital, and Tacit Capital.
It’s noteworthy, however, that Alexis Ohanian, Reddit co-founder, doesn’t appear among those owning a 5% stake or larger and doesn’t hold any other mentions within the filings.