Social-media site Reddit (NYSE:RDDT) debuted on the New York Stock Exchange on Thursday, and it was a huge hit with investors out of the gate.
On Wednesday, Reddit announced its initial public offering of 22 million shares for $34 per share, with a market value of $6.5 billion at IPO. On Thursday, it opened trading at around $47 per share and surged an impressive 67% to around $57 per share. By late afternoon, Reddit shares were back down to around $50 per share, although they remained up 47% on the day.
Reddit was among the first social-media sites when it launched in 2005, but it didn’t go public until now, unlike many of its peers. The company has been considering an IPO since 2021, but the IPO market started drying up soon thereafter as interest rates started spiking. Reddit is the first major social-media site to go public since Pinterest (NYSE:PINS) in 2019.
Bellwether IPO
The performance of Reddit’s IPO is significant as many market watchers view it as a bellwether for future IPOs. The strong investor excitement for the social-media site could entice other companies to go public, particularly as interest rates are expected to come down.
IPO activity has already picked up in 2024. According to Stock Analysis, there have been 39 IPOs in 2024 counting the Reddit IPO; that’s 19% more than there were in the same period in 2023. One of the largest, Astera Labs (NASDAQ:ALAB), went public on March 20 with an IPO of $36 per share. As of Thursday afternoon, the share price had doubled in value to $72 per share.
Reddit has more than 100,000 active communities on its site, 73 million daily active unique users, and 237 million monthly active unique users.
“I have never been more excited about Reddit’s future than I am right now,” Reddit co-founder and CEO Steve Huffman said in an SEC filing on March 21. “We have many opportunities to grow both the platform and the business, the latter through advertising, monetizing commerce on the platform, and licensing data. Our work to make Reddit faster, easier to use, easier to moderate and govern, and simpler to navigate and find relevant communities is driving growth today and will continue to be our focus into the future.”
He added that advertising is their first business and that advertising on Reddit is rapidly evolving.
“We are still in the early phases of growing this business,” Huffman concluded.
This offering is somewhat unique in that 1.76 million shares, or 8%, will be set aside for certain Reddit users and moderators, board members, and friends and family members of certain employees and directors.
Net loss in 2023
It will be interesting to see how Reddit stock fares after the euphoria around its IPO dies down. In an SEC filing, management said the company posted revenue of $804 million in 2023, up 20.5% from the previous year.
However, the company’s expenses rose 12.5% from the previous year to $944 million, with most of the increase attributed to research and development costs, which rose 20% to $438 million. As a result, Reddit posted a $91 million net loss in 2023, although that was better than the $158 million net loss in 2022.
Huffman told Yahoo Finance the company was profitable in the second half of 2023, as measured by adjusted EBITDA.
However, company management said in a recent SEC filing, “We have incurred net losses since our inception, and we may incur net losses in the future.”
As of the end of 2023, Reddit has an accumulated deficit of $716.6 million.
Company management also wrote in the filing that they anticipate more increases in costs, which they hope to offset by driving revenue higher.
“While we have recently undertaken cost reduction measures, we expect our costs and expenses to increase in future periods as we intend to continue to make significant investments to broaden our user base, develop and implement new products, market new and existing products and promote our brand, expand our technical infrastructure, and hire additional employees,” states the SEC filing.
Thursday was definitely a good day for Reddit and the markets. However, investors should proceed with caution and may be well-served by waiting for a corporate update in Reddit’s first earnings report as a public company.
