Reddit’s shares surge on its first day of public trading

The company’s stock price rose by almost 70% from its initial public offering (IPO), potentially earning Condé Nast’s parent company nearly $1.4 billion

Shares of social media platform Reddit (RDDT.N) closed their first day of trading in New York up 48%, indicating a potential resurgence in investor interest for initial public offerings of promising yet unprofitable companies.

The closing price represented a 48% increase from the initial offer prices, valuing Reddit at over $9 billion in a highly anticipated debut. The stock reached a peak of $57.80 per share, up 70%, before settling at $50.44 by the end of the day.

Initially priced at $34 per share, the IPO raised $748 million for the San Francisco-based company and its selling shareholders, giving it a market value of $6.4 billion. This IPO had been anticipated for over two years, with Reddit filing confidentially for an IPO in December 2021, but delaying due to market volatility. Despite the strong debut, Reddit’s current valuation is below its 2021 valuation of $10 billion from a private funding round.

Reddit’s strong market entry is poised to yield a substantial profit for its largest shareholder, Advance Publications. The parent company of Condé Nast, which owns popular magazines such as the New Yorker, Vogue, and Wired, is expected to gain up to $1.4 billion from the debut. Advance acquired Reddit for $10 million just 18 months after its launch.

Reddit co-founder and CEO Steve Huffman received a compensation package valued at $193 million last year. The site’s other co-founder, Alexis Ohanian, who has long been the public face of the company compared to Huffman’s more behind-the-scenes technical role, is not listed in the company’s filings with US financial regulators.

Reddit’s other significant shareholders include the Chinese gaming giant Tencent, which holds an 11% stake in the company after spearheading a $300 million investment round in 2019; Fidelity, which owns 9.5% through multiple investments in Reddit; and Sam Altman, the CEO of OpenAI, who holds an 8.7% stake following his investment in 2014. Reddit was part of the inaugural class of the influential Y Combinator startup accelerator program shortly after its establishment in 2005. Altman subsequently served as president of Y Combinator.

Experts suggest that with few large tech IPOs in recent years, the enthusiasm for technology stocks is likely to give Reddit a strong start on the market. However, Julian Klymochko, CEO of alternative investment solutions firm Accelerate Financial Technologies, noted that investors will closely monitor the market in the coming weeks.

“If Reddit performs poorly, it could negatively impact the IPO market,” Klymochko stated. “Many companies may delay their IPO plans.”

Since its inception in 2005, Reddit has become a cornerstone of social media culture. Its logo, featuring an alien head on an orange background, is one of the most recognizable symbols on the internet. The company has long used the tagline, “The front page of the internet.”

Its 100,000 online forums, known as “subreddits”, facilitate discussions on a wide range of topics, “from the sublime to the ridiculous, the trivial to the existential, the comic to the serious,” according to Huffman.

Huffman himself sought assistance from one of the subreddits to quit drinking, as he mentioned in his letter. Former US President Barack Obama also participated in an “AMA” (“ask me anything”), which is internet slang for an interview, with the site’s users in 2012.

Despite its cult-like status in the realm of social media, the company has not been able to replicate the success of its larger counterparts, such as Meta’s Facebook and Elon Musk’s X. According to its filings, Reddit boasts approximately 73 million unique daily visitors. In contrast, Facebook claims that 2 billion people log into its app every day.

As part of its initiative to reward its user base, Reddit has set aside 8% of the shares for eligible users, moderators, certain board members, as well as friends and family members of its employees and directors.

The company has indicated that it is “in the early stages of monetizing [its] business” and has yet to achieve an annual profit. Analysts anticipate that investors will closely examine its strategy for achieving profitability.

“The significant developments will likely come after the first earnings call – where is their business headed, what are the financial results indicating, and what adjustments are they planning to make,” said Reena Aggarwal, director of the Georgetown University Psaros Center for Financial Markets and Policy.