The first major debut of the social network since 2019

Reddit, which has been operating since 2005 and has more than 73 million daily users in the last quarter, has filed a request with the US Securities and Exchange Commission (SEC) for a public offering of its shares as early as the end of February 2024. The long-awaited entry to the stock exchange should, according to Financial sources Times to take place on March 21, 2024, but the company itself has not yet published more information about the specific date. The shares will be listed on the NYSE under the ticker RDDT. Interestingly, this is the first IPO of a social network in the last 5 years, when Pinterest issued its shares.

Offer also for the community

The company has decided to offer about 22 million Class A shares at an expected price range of $31-$34 per share, which will go public on March 20, 2024, according to Inc.com. The company is looking to raise nearly $750 million with the move and predicts it could reach a market capitalization of around $6.4 billion. It has not forgotten its community of users and moderators, and according to the CNBC portal, it has approximately 1.76 million shares reserved for purchase for those who created an account before January 1. Those who take advantage of the purchase option will be able to sell the shares on the day of the issue, which would be possible only after 6 months in the case of a "traditional IPO" due to blockages. The issue is to be led by verified companies such as Goldman Sachs, Morgan Stanley, JPMorgan or Bank of America. Advance is currently Reddit's largest shareholder Magazine Publishers Inc., part of the Newhouse family publishing empire , Chief Operating Officer Jennifer Wong, FMR LLC, entities associated with OpenAI CEO Sam Altman, and Tencent Holdings Ltd, among others.

What the IPO will mean for the community

In the application to the SEC, the company states that becoming publicly traded will have many benefits not only for the company itself, but also for users. In addition to the above-mentioned possibility for users to purchase shares before the launch itself, Reddit will be able to increase financial support for community programs, improve and adapt its space within the community, but also offer tools and incentives for developers and developers for new ways of generating profit.

Improving economic results

Even though Reddit is not yet profitable, it managed to increase its revenue to over $800 million in 2023 and reduce its loss to just over $90 million. For comparison - in 2022, sales reached 666 million USD and losses up to 158 million USD.* Another positive news that can support a better result of the IPO is the availability of the content of the platform for Google. The deal between the companies, which will cost Alphabet $60 million a year, will allow Google to use Reddit content to train and improve artificial intelligence models.

Potential problems

Although the company will offer its users the privilege of pre-empting shares, in an application to the SEC, it warns that this step can be risky and can cause increased price volatility. Like any decision, this one has to deal not only with the positive but also with the negative opinion of the public, specifically the users of the social network. Many of them react to the upcoming IPO with disdain and present the opinion that Reddit will focus more on investors than on users. Some even compare the purchase of shares by users to an employer who invited employees to pizza, which they will have to pay for themselves. Since users are the driving force of the entire platform, by joining forces they can have a huge impact on the entire course of the IPO, as shown in the recent past, when retail investors from the WallStreetBets community caused a sharp increase in the value of the companies GameStop or AMC Etertainment, thus creating the phenomenon of "meme shares".

Competitive advantage?

It will be interesting to watch the company's IPO and how it fares, as the IPO market has experienced uncertain times over the past 2 years, ultimately causing undervaluation of companies going public. On the other hand, Reddit is special mainly due to its strong grouping of retail investors, which in my opinion can represent a strong support for the company when issuing shares compared to competing companies.

Olívia Lacenová, principal analyst companies Wonderinterest Trading Ltd.

* Past performance is no guarantee of future results.