San Francisco’s social media giant, Reddit, is gearing up for its initial public offering (IPO) with an interesting twist: allowing some of its most engaged users to participate in the ownership. This comes amidst reports that the IPO is significantly oversubscribed, despite a lowered valuation target compared to previous funding rounds.
Strong Demand, Adjusted Expectations
According to sources, Reddit’s IPO could be oversubscribed by as much as five times. This indicates strong investor interest, despite the company aiming for a valuation between $5 billion and $6.5 billion. This is a significant adjustment from the $10 billion valuation it achieved in its August 2021 fundraising round. The reasoning behind the lower target likely lies in the current IPO market, which has seen a cool-down compared to previous years.
Reddit aims to raise $748 million through the IPO by offering over 15.2 million shares of its Class A common stock, with an additional 6.7 million from existing shareholders. In a move that breaks tradition, Reddit will also allow some employees and top users with high “karma” (a measure of user reputation) to sell shares during the IPO. This stands in contrast to the typical lock-up period enforced by companies to prevent immediate selling that could impact the stock price.
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Financial Performance and Ownership Structure
While Reddit boasts a vibrant user base with over 76 million daily visitors in December 2023, it hasn’t turned a profit yet. The company reported a net loss of $90.8 million for 2023, despite a positive net income of $18.5 million in the last quarter. Interestingly, Reddit’s IPO filing reveals that the company holds cryptocurrencies like Bitcoin, Ethereum, and Polygon.
Co-founder and CEO Steve Huffman remains a major player with a 3.3% ownership stake. Other significant shareholders include Advance Publications (parent company of Reddit’s former owner Condé Nast), Tencent, and OpenAI CEO Sam Altman.
Reddit’s IPO is expected to take place on the New York Stock Exchange under the ticker symbol “RDDT” with a price range of $31 to $34 per share. The company’s decision to include its engaged user base in the ownership process adds a unique layer to the IPO story. With a strong social media presence and a loyal user community, Reddit’s public debut will be one to watch, despite the adjusted valuation target.
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