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Reddit shares soar in market debut, signaling investor appetite

Despite being unprofitable since its inception, Reddit managed to capture investors' interest by promoting its potential in training AI programs.

Reddit RDDT

Shares of the social media platform Reddit, under the ticker symbol “RDDT”, soared 48% on their trading debut in the New York Stock Exchange on Thursday, Reuters reported. The company’s shares opened at $47 on the NYSE and ended the trading day at $50.44. This is significantly higher than Reddit’s IPO pricing of $34, which was at the top end of the indicated range of $31 to $34 per share.

The market valuation of the San Francisco-based company reportedly reached $6.4 billion. This valuation is a climb-down from the $10 billion valuation during a 2021 private fundraising round but still represents a strong market reception. Reddit’s selling shareholders raised $748 million from the initial public offering.

With this IPO, Reddit has become the first major social media platform to go public since Pinterest in 2019. Its successful public debut is an important first for the company as it positions Reddit to become the largest tech IPO of 2024 (to date) and shows investors’ appetite despite the company being unprofitable since its inception in 2005. Reportedly, Reddit, primarily funded through advertising revenue, positioned artificial intelligence as a key growth area during its IPO marketing.

The social media platform led by Steve Huffman managed to capture investors’ interest by promoting its potential in training AI programs. In February, it was reported that Reddit inked a lucrative deal with Google, paving the way for its content to train the search engine giant’s AI models. The annual deal is worth $60 million.

Another unique move seen at Reddit’s IPO was the involvement of its community by allocating 8% of the shares to eligible users and moderators. Unlike typical IPO lock-up periods, these participants can sell their shares immediately, a move seen as risky by some analysts due to the potential for increased price volatility.

Meanwhile, Reddit’s journey to the public market was not without its delays, primarily due to the volatile stock market affected by geopolitical tensions caused by the Russia-Ukraine war and the hiking of interest rates by the U.S. Federal Reserve. However, the successful IPO indicates a shift in investor sentiment, willing to overlook current losses for potential future growth.

Reddit reported a net loss of $90.8 million for the fiscal year that ended December 31, 2023, according to its IPO filing. Despite this, the company showcased a 21% revenue growth, climbing to $804 million in 2023 up from $666.7 million in the previous year.

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