By MICHAEL LIEDTKE and WYATTE GRANTHAM-PHILIPS (AP Business Writers)
Reddit excelled in its Wall Street initiation as investors raised the company's value to nearly $9 billion within seconds of trading on the New York Stock Exchange.
Reddit, which priced its IPO at $34 per share, made its debut at $47 per share on Thursday afternoon. The price then rose even further, but fluctuated. As of around 2:30 p.m. ET, shares for the self-proclaimed 'front page of the internet' were up over 40%.
The IPO will test the unique company’s ability to overcome a nearly 20-year history characterized by continued losses, management chaos, and user backlash to establish a sustainable business.
Reddit's high initial performance on the public market was expected by some industry experts.
“The supply is pretty limited and there’s strong demand, so my sense is that this is going to be a hot IPO,” Reena Aggarwal, director of Georgetown University’s Psaros Center for Financial Markets and Policy, said ahead of Reddit’s trading Thursday — while also pointing to bullish market conditions overall.
However, she also anticipated Reddit’s IPO to be volatile. Even with a significant “pop” right out of the gate, it’s possible that some might sell their shares to reap gains soon after — potentially causing prices to drift.
The interest in Reddit largely comes from a large audience that regularly visits the platform to discuss a variety of topics and receive recommendations from like-minded individuals.
According to the regulatory disclosures required before the San Francisco company goes public, about 76 million users engaged with one of Reddit’s approximately 100,000 communities in December. Reddit reserved up to 1.76 million of the 15.3 million shares offered in the IPO for its users.
As is customary for IPOs, the remaining shares are expected to be primarily purchased by mutual funds and other institutional investors, betting that Reddit is prepared for success in the financial market.
Reddit's potential to make money has also attracted some prominent supporters, such as OpenAI CEO Sam Altman, who acquired a stake as an early investor and has become one of the company's largest shareholders. Altman holds 12.2 million shares of Reddit stock, according to the company’s IPO disclosures.
By the tech industry’s standards, Reddit still remains relatively small for a company of its age. For example, Thursday’s initial valuation of $9 billion is still well below the $1.2 trillion market value held by Meta Platforms — whose primary social media service, Facebook, was launched just 18 months earlier than Reddit.
Reddit has never made a profit despite its wide reach, accumulating total losses of $717 million. This number has grown from cumulative losses of $467 million in December 2021 when the company first filed for going public before canceling that attempt.
In the recent documents submitted for its revived IPO, Reddit attributed the losses to a relatively recent focus on finding new ways to increase revenue.
Shortly after its creation, Reddit was purchased by Conde Nast for $10 million, allowing it to not operate independently. Although Conde Nast's parent company, Advance Magazine Publishers, spun off Reddit in 2011, the company did not prioritize generating revenue until 2018 according to its IPO filing.
Primarily focusing on selling advertisements, Reddit managed to increase its annual revenue from $229 million in 2020 to $804 million the following year. However, the San Francisco-based company also reported combined losses of $436 million from 2020 to 2023.
In its filing, Reddit outlined a strategy to further increase ad sales on the platform, believing it will be an effective marketing tool due to the high number of users seeking product recommendations there.
The company also aims to generate more revenue by licensing access to its content in deals similar to the $60 million agreement with Google. However, this ambition faced a challenge when the U.S. Federal Trade Commission initiated an inquiry into the arrangement.
Since Thursday marked Reddit's first day on the public market, Aggarwal emphasized that the company's initial measure of success will depend on its next earnings call.
“As a public company now they have to report a lot more … in the next earnings release,” she said. “I’m sure the market will watch that carefully.”
Reddit also faced periods of leadership instability, which could deter potential investors. Company co-founders Steve Huffman and Alexis Ohanian left Reddit in 2009 while Conde Nast was in control, only to return years later.
Now serving as CEO, Huffman did not mention the company's past turmoil leading up to this IPO in his founder’s letter, but he did touch upon it in another message included in a December 2021 filing attempt that was subsequently canceled.
“We lived these challenges publicly and have the scars, learnings, and policy updates to prove it,” Huffman wrote. “Our history influences our future. There will undoubtedly be more challenges to come.”
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Liedtke reported from San Francisco.
