Reddit, the online forum that has been the centre of online communities and conversations for nearly 20 years, has just announced its Initial Public Offering (IPO).
But what it could mean for the future of the platform? We took a deep dive to find out…
Everything You Need to Know About Reddit’s IPO
As Reddit gears up for its IPO, the tech world is certainly looking closely. The event is not just a big moment for the company, but also the wider digital community. But what does it mean? And why is it getting so much widespread attention?
The Financials
Reddit is aiming for a valuation of up to $6.4 billion, a figure that is considerably lower than the $10 billion valuation it gave itself during a private funding round in 2021.
According to a filing in the US reported by the BBC, Reddit and its investors are hoping to sell 22 million shares for between $31 and $34 each.
However, the strangest thing about the $6.4 billion valuation is that it seems to ignore Reddit’s long-standing lack of profitability, with losses of up to $90 million last year alone. This is certainly no small number, with many investors likely to be evaluating at the potential returns these shares can gather, if any.
Whilst the move is certainly ambitious, it will be interesting to see how much value potential investors see in Reddit’s highly-engaged community, pointing to the importance of engagement over profit.
Democratising Ownership
The move to IPO is not only an interesting one financially, but also shows the value of community ownership. Reddit’s popularity is solely built on the contributions of its community, and giving them a chance to own a piece of the company strengthens this bond even further.
By giving the community a financial incentive to keep engaging with and pushing forward the company, Reddit might be setting a new standard for community engagement online. It will certainly be interesting to see how this vested interest plays out.
User And Community Reactions
The announcement of the IPO has gathered mixed reactions from the Reddit community. Some members express excitement about the possibility of owning a piece of the platform. Others, however, are concerned over how the platform might change under a new ownership structure.
As more people invest in the company, the drive to be profitable could lead to changes in the company’s structure, making more room for advertisers and less room for culture.
Why IPO At All?
Given Reddit’s financial history, an influx of new capital could be the boost of innovation that the company needs, giving it the resources to improve the platform and prioritise profitability.
On the other hand, this could become a barrier for positive change, as more stakeholders looking at the bottom line could drive decisions that detract from the platform’s unique community appeal. In truth, only time will tell.
When Is Reddit Planning to IPO?
Reddit’s IPO is scheduled for March 21st. It will be interesting to see how quickly community members will look to buy up the shares, and how much their value will increase or decrease depending on demand.
Is It a Good Idea?
And the golden question, is this a good move for Reddit? We asked the experts what they thought, and here’s what they had to say…
Julia Khandoshko, CEO at Mind Money
“Before COVID-19, when the rates in the USA were low, we could observe a surge in IPOs. Accordingly, being part of this trend, Reddit would have been expected to follow suit during this period of minimal rates. That’s why Reddit first applied for the IPO in 2021. However, because of the pandemic, many companies, including Reddit, delayed their IPO plans out of concern that they wouldn’t attract sufficient investment.
“Even as the pandemic receded, interest rates remained high. This presents a dilemma: launching an IPO under current conditions would be costly, but waiting for rates to drop could mean missing out on the spotlight.
“Reddit’s 2024 IPO might not be prosperous. The right time has not come yet, and the probability that rates will decrease by the summer is not very high. In general, conducting an IPO against such high rates is unpromising. It’s crucial to highlight that this company lacks technological sophistication, making it less promising for investments. Reddit is unlikely to undergo significant changes since there is no other economic model.
“Moreover, the results of the U.S. presidential elections are still being determined. A win for the democratic party could result in tighter regulations for businesses. Respectively, Reddit’s future as a stock company does not look promising. Reddit intends to allocate a significant portion of its IPO shares to its users, a unique strategy that could foster allegiance while also carrying potential risks. Nevertheless, a prosperous IPO could boost the allure of the U.S. market and the company’s standing, serving as an example for other businesses.”
Mike Darkowski, Investor and Founder at Scrab.com
“Reddit’s IPO topic is not clear-cut – as many viewpoints, as many opinions.
“The winners from such a decision are definitely the employees and investors who, after long 18 years, finally lived to see the exits (especially with this level of active users and revenue).
“For users and the community, the decision is a definite negative, as the focus on profitability primarily through API pricing changes of the previous year killed most 3rd party apps (e.g., used by the visually impaired and blind – reportedly, the official Reddit app is quite poor in this aspect) and caused numerous moderator departures, which may be financially profitable in terms of IPO, but negatively affect long term user numbers and engagement.
“As usual, the point of view is quite blurry: if you are an active user of Reddit, an IPO can mean trouble, but if you want to make money from it – you are in a winning position.”
Adam Zoucha, Managing Director at FloQast
“The “RDDT” debut won’t just be a premier moment for its shareholders, but potentially a sign of big things to come.
“This will naturally be seen as a litmus test for other tech IPOs. And, one that could set the tech-footing for the year ahead.
“Successful IPOs rely on the timing of a combination of factors – market conditions, industry trends, investor sentiment and fiscal due-diligence.
“Organisations that are pre-IPO need to button up their finances and prepare for greater investor scrutiny. And, that can be a gruelling experience for finance teams. Those that can make financial reporting routine, such as the monthly close process, will have fought much of the battle. Then it’s a matter of ensuring the SEC has limited questions, by ensuring your SOX internal controls are watertight.
“Post-IPO companies need to be on a continuous cycle of transparency. By closely analysing, monitoring, and reporting on the financial health of the company, it’s easier to navigate investor relations and market dynamics over the long-term – adjusting business strategies as necessary.”
Bruna de Castro e Silva, AI Governance Specialist at Saidot
“Valid concerns have been raised over the recent news that Reddit is licensing its user-generated content to a large AI firm for content training ahead of its IPO launch. As a social news forum that hosts millions of daily users, the data used to shape AI models will come from millions of diverse, individual sources who haven’t necessarily given explicit consent for their contributions to be used to develop AI models.
“It is essential that Reddit clarifies whether its terms and conditions allow for the selling of user-produced content to a third party, and if so, where exactly this is stated in their terms and conditions. Furthermore, it’s important to know if users have any way to opt out of such a deal or if account deletion is the only option. If users do close their accounts and withdraw their data from Reddit, further questions arise over whether archived user data can be shared with third parties. Compounding these concerns, potential copyright issues arise if users have posted content belonging to others on Reddit. Until these issues are properly addressed, Reddit is treading on uncertain territory when it comes to privacy and copyright law.
“Ultimately, the situation underscores the urgent need for clear, enforceable rules around data usage in AI training. While such partnerships can drive innovation, they mustn’t do so at the expense of ethical considerations and individual rights. AI firms and platforms alike must take responsibility for ensuring transparency, informed consent, and robust data protection and governance. As we tread these uncharted waters, it’s crucial that we foster a culture of accountability and respect for users’ rights in AI development.”
Rich Went, Senior Account Director at Gallium Ventures
“Reddit’s IPO is a litmus test not just for the future viability and value of challenger, loss-making, advertising-based social media companies — but for the IPO market itself. If done successfully — and if they are able to convince institutional investors there is tangible value in their model — this could be a turning point in a lacklustre IPO landscape.
“Reddit is using the IPO to attract more brands and advertising dollars, which is great for the future viability of the platform, but risks being done so at the expense of the user. The S-1 points to many new tools to help brands tap into its audience and increase earnings potential. But its audience is already wary of the oncoming march of marketers into subreddits. Early indications can be seen by some on r/WallStreetBets advocating for a reverse GameStop, and shorting the very platform they post on.
“How Reddit handles the IPO is one thing, but how it balances the needs for both advertisers and users in the immediate future will signal whether this is the end of the beginning, or the beginning of the end.”
Paul Turner, Executive Director at Capex.com Middle East
“The IPO of Reddit comes at a time when the market is seeing an improvement in the demand for new listings as the number of companies going public increased last year after a significant drop in 2022. The momentum could continue this year in particular as investors look forward to a softer monetary policy later this year.
“The company could benefit from the current risk-on sentiment and the significant gains the stock market has been recording lately. The S&P 500 has been seeing non-stop increases since November 2023 and could continue to rise if conditions remain favorable, which could support the company’s stock price once trading starts.
“However, the company’s financial results could come under increased scrutiny as it enters the stock market which could have an impact on its services and the communities it serves. The latter could react to any new initiatives from the company’s management, potentially affecting the stock’s performance.
“At the same time, the company has been able to improve its revenue in 2023 compared to 2022 and has reduced its losses significantly which could help attract investors.”
Daniel Li, Co-Founder and CEO at Plus Docs
“Going public is a good way for mature, high-growth companies to become more financially disciplined and take advantage of the liquidity and access to more capital in the public markets. Reddit’s IPO, however, is going to be a lightning rod because they are bringing a social media stock without a profitable business model to the market at a time when social media is out of favour, and public market investors prefer investing in profitable businesses.
On top of the structural problems with the current business model and negative investor sentiment on social media, Reddit has been promoting the IPO to their own users, including members of the infamous “WallStreetBets” community, who are already planning to take leveraged short positions in the stock. All of these factors will lead to high volatility in the stock price post-IPO. The good news is Reddit users are going to have a lot to talk about, which should increase engagement on the platform!”
