Reddit valuation stuns Wall Street as social media company’s shares soar

Shares of social media company Reddit opened at $47 (USD) on the New York Stock Exchange on Friday (AEDT), before vaulting even higher in a buoyant market debut.

Reddit shares stood at $50.35 near 5.30am, up almost 50 per cent from their initial public offering price of $34, in a shimmering start that raised hopes the slumping IPO market could be poised for a revival.

The company, which trades under the ticker RDDT, currently has a market capitalisation above $8 billion.

Market watchers were not sure what to expect from Thursday’s start given Reddit’s record of annual losses and scepticism about potential growth in advertising revenues — which the company has described as a key area of promise.

A few hours before the first trade, Chief Executive Steve Huffman told CNBC that Reddit was seeing “a lot of momentum” in the advertising market.

“What’s special about Reddit is whatever you’re into whatever you’re going through,” whether applying to school or going through romantic or health trouble, “it’s all on Reddit”, he said.

He added: “There’s really no constraint on how big the ads business can be.”

The social media company has also expressed confidence about growth from monetising user data and greater international usage.

Thursday’s trading performance suggested such arguments found resonance, at least initially, despite lingering questions about the company with a record of financial losses.

The entry of Reddit comes on the heels of a big slowdown in tech IPOs since the US Federal Reserve started hiking interest rates.

With easy financing scarce, Silicon Valley has seen a dearth of businesses ready to make the leap to go public, with Pinterest being the last social media company to do so in 2019.

San Francisco-based Reddit first filed for IPO in 2021 when the market was hot thanks to a Covid-linked growth boom for tech. But the attempt stalled as the internet economy cooled.

Reddit — unlike Facebook or X, formerly Twitter — is siloed into about 100,000 subject-focused chatrooms known as subreddits, making it more specialised and a place where posts are less prone to going viral.

Even so, Reddit has 73 million average daily users and 267 million monthly users, mainly in the United States, according to its filing to US regulators.

Content in subreddits is mostly moderated independently, with the site demanding a basic standard that users must adhere to, making it less policed or centralised than Facebook or TikTok.

Following the lead of companies like Airbnb and Rivian, Reddit set aside about eight per cent of the IPO shares for moderators and top users, known as “Redditors”.

There are a lot of questions on whether Reddit will be a successful business and the company has never turned a profit in its two decades of existence.

Buoyed by faithful yet often unruly users, Reddit is not seen as fertile ground to grow advertising, which will be the main path for the company to make money.

Reddit was created in 2005 by Hoffman and Alexis Ohanian – better known as Serena Williams’ partner.

“In 2005 Alexis Ohanian had an idea to start an online community,” Williams tweeted on Friday. “That idea became Reddit and today is its IPO.

“Alexis I am so proud of you as a business man, My man and a dad. Congrats on your IPO! It’s crazy to know you have even bigger things you are doing!”

After its creation, Reddit was quickly sold to Conde Nast, the publisher of Vogue and the New Yorker magazine, in an unlikely pairing.

In 2011, Reddit was spun-off, though Conde Nast’s parent company, controlled by the Newhouse family, remains the biggest shareholder.

OpenAI CEO Sam Altman is also a major investor after he led a fundraising round about a decade ago.

– AFP

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