The social media platform Reddit is preparing for its much-anticipated debut on the New York Stock Exchange on Thursday, setting the stage for other companies looking to go public this year, while testing investor interest in new offerings.
The San Francisco, California-based company priced its initial public offering (IPO) at the top end of the US$31 to US$34 range it had previously announced, valuing the company at US$6.4 billion and raising US$748 million. Reddit Reddit’s long-awaited debut as a publicly traded company has been in the works for more than two years. It confidentially filed for an IPO in Dec. 2021, but the stock rout due to the Federal Reserve’s quantitative tightening caused a delay.
The much-anticipated debut will be a big test for the IPO market, where investors are starting to see some positive signs, thanks to increasing bets of a soft landing.
“If Reddit performs poorly in the market, it will negatively impact the IPO market. Many companies will postpone their IPO plans,” said Julian Klymochko, CEO of alternative investment solutions firm Accelerate Financial Technologies.
RISKY RETAIL ALLOCATION
The “meme-stock” saga of 2021, when a group of retail investors from Reddit’s “wallstreetbets” bought shares of highly shorted companies like GameStop, helped boost the company’s popularity significantly.
As part of its effort to reward its user base, Reddit reserved 8% of the shares for eligible users and moderators, certain board members, and friends and family members of its employees and directors.
But this move is considered risky, according to analysts. Retail traders usually cannot participate in IPO bidding, so they buy shares once they start trading, which could cause a surge in the stock price on the first day.
Providing early access to the IPO could reduce some of the demand. These buyers also are not subject to a lock-up period and could opt to sell when the stock starts trading, potentially increasing price volatility.
“I don’t know of any company that truly benefits from allocating shares to their users,” said Alan Vaksman, founding partner at investment firm Launchbay Capital.
CULTURAL PHENOMENON
Since its launch in 2005, Reddit has become a key part of social media culture. Its famous logo – featuring an alien with an orange background – is one of the most well-known symbols on the internet.
Its 100,000 online forums, known as “subreddits,” facilitate discussions on a wide range of topics, from the mundane to the profound, the trivial to the existential, the humorous to the serious, according to co-founder and CEO Steve Huffman.
Huffman himself turned to one of the subreddits for support to stop drinking, as he mentioned in his letter. Former U.S. President Barack Obama also participated in an “AMA” (“ask me anything”), an internet term for an interview, with the site’s users in 2012.
The enthusiasm for technology stocks may help Reddit get off to a strong start, according to Josh White, assistant professor of finance at Vanderbilt University.
“We do not see many big tech IPOs. Those are usually very popular because it's difficult to buy that type of growth,” White stated.
But despite its devoted status in the social media world, the company has not been able to replicate the success of its larger competitors Meta Platforms’ Facebook and Elon Musk’s.
The company has stated that it was “in the early stages of monetizing (its) business” and has not yet made an annual profit. Analysts say investors will be examining its plan to become profitable.
“The real news will come after the first earnings call – where are they headed, what do the results look like, what changes are they going to make,” said Reena Aggarwal, director of the Georgetown University Psaros Center for Financial Markets and Policy.
Social media platform Reddit prepared for its high-profile market debut on the New York Stock Exchange on Thursday, paving the way for other companies looking to go public.
