Reddit aims to raise $995m in long-awaited IPO

Reddit disclosed further details of what is set to be one of 2024’s biggest initial public offerings (IPO), with the company and some shareholders seeking to raise as much as US$748 million (S$995 million).

Reddit and the holders are planning to sell 22 million shares for US$31 to US$34 each, the social media platform said in a filing on March 11. About 15.3 million of those shares will be sold by the company and the rest by the investors, who are Reddit employees.

At the top of that range, Reddit, whose users helped create the meme stock frenzy of 2021, would have a market value of US$5.4 billion, based on almost 159 million shares outstanding. Fully diluted to include employee stock options and restricted share units, the company’s valuation would be about US$6.4 billion, the filing with the US Securities and Exchange Commission shows.

About 8 per cent of the IPO shares are being set aside for Reddit users and moderators who created accounts before Jan 1, as well as some board members and friends and family of some employees and directors. Those shares will not be subject to a lock-up, meaning the owners can sell them on the opening day of trading, according to Reddit’s filing that confirms an earlier report by Bloomberg News.

The IPO is being led by Morgan Stanley, Goldman Sachs Group, JPMorgan Chase & Co and Bank of America, according to Reddit’s filings. Reddit plans for its shares to trade on the New York Stock Exchange under the symbol RDDT.

The company intends to price the IPO on March 20 and begin trading the following day, according to people familiar with the matter who asked not to be identified because the information was not public. A representative for Reddit did not immediately respond to a request for comment on the timing.

Reddit’s valuation

Reddit’s more than two-year slog to listing reflects the ups and downs of the market, beginning with its initial confidential filing in 2021, when IPOs on US exchanges set an all-time record of US$339 billion, according to data compiled by Bloomberg. Reddit raised funds that year, valuing it at US$10 billion, and Bloomberg News reported the following year that it could be valued at as much as US$15 billion in an IPO.

Meanwhile, IPOs in the US tumbled, reaching only US$26 billion in 2023, the data showed. In January, Bloomberg News reported that Reddit was weighing feedback from early meetings with potential IPO investors that it should consider a valuation of at least US$5 billion.

The company is a high-profile addition to the year’s roster of newly and soon-to-be public companies. The biggest of those listings was the US$1.57 billion offering by Amer Sports in January. Astera Labs, a software maker focused on artificial intelligence (AI), said in a filing on March 8 that it would seek up to US$534 million in its IPO, which will likely proceed after Reddit’s.

Reddit’s listing will be watched closely by IPO candidates such as Microsoft-backed data security start-up Rubrik and healthcare payments company Waystar Technologies. Their deliberations come after a quartet of US listings led by semiconductor designer Arm Holdings’ US$5.23 billion offering in September failed to ignite a lasting rebound in the market.

Shrinking losses

Founded in 2005, Reddit averaged 73.1 million daily active unique visitors in the fourth quarter, according to its filings. The company reported a net loss of US$91 million on revenue of US$804 million in 2023, compared with a net loss of about US$159 million on revenue of US$667 million a year earlier.

Reddit’s largest shareholder is Advance Magazine Publishers, part of the Newhouse family publishing empire that owns Conde Nast, which bought Reddit in 2006 and spun it out in 2011.

Reddit said its millions of loyal users and moderators pose risks as well as a benefit for the company. Redditors have a historically combative relationship with the site, launching revolts over everything from racism on the platform to executives’ staffing decisions.

Meme stocks

Thousands of members of the WallStreetBets forum – which boasts around 15 million users and helped popularise meme stocks like GameStop – voted to boost a forum post about shorting Reddit’s stock when it begins trading. Their reasons varied from the company’s lack of profitability to competitive concerns.

Some of the largely anonymous users on Reddit expressed an interest in buying IPO shares, while others called the IPO a “mistake” or predicted that the stock will crash.

“Honestly don’t believe it will be successful,” one user wrote. “Too many social media companies chasing a few dollars. They already throw all the ads at me and I will not pay them to disable it. I never clicked on an ad on purpose.”

Reddit co-founder and chief executive Steven Huffman said in a signed letter included in the filings that the company has many opportunities to grow both the platform and the business.

“Advertising is our first business, and advertisers of all sizes have discovered that Reddit is a great place to find high-intent customers that they aren’t able to reach elsewhere,” Mr Huffman said. “Advertising on Reddit is rapidly evolving, and we are still in the early phases of growing this business.”

AI licensing

Reddit said it is in the early stages of allowing third parties to license access to data on the platform, including to train AI models. The company said that in January, it entered into data licensing arrangements with an aggregate contract value of US$203 million and terms ranging from two to three years. It expects a minimum of US$66.4 million of revenue from those agreements in 2024, according to the filings.

Reddit has also announced a deal with Alphabet’s Google, allowing Google’s AI products to use Reddit data to improve their technology. Large language models often need vast troves of human-generated content to improve.

Mr Huffman owns shares that will give him 3.3 per cent of the voting power after the offering. That includes Class B shares that will have 10 votes each compared with one each for the Class A shares to be sold in the IPO, the filings show. He also has a voting proxy agreement with Advance.

Other large shareholders include chief operating officer Jennifer Wong, as well as FMR and entities affiliated with OpenAI chief executive Sam Altman, Tencent Holdings, Vy Capital, Quiet Capital and Tacit Capital, according to the filings.

In all, Mr Huffman and those investors will hold about three-quarters of the shareholder voting rights after the IPO.

Mr Huffman’s fellow co-founder, venture capitalist Alexis Ohanian, is not listed among the investors with stakes of 5 per cent or more and is not named elsewhere in the filings. BLOOMBERG