Written by Niket Nishant
(Reuters) – Reddit shares opened 38% above their debut price on the New York Stock Exchange on Thursday, valuing the social media platform at $8.87 billion.
The San Francisco, California-based company has priced its IPO at the high end of a range of $31 to $34. The IPO valued Reddit at $6.4 billion and raised $748 million for the company and selling shareholders.
Reddit's long-awaited entry as a public company has been in the works for more than two years. The company secretly filed for an IPO in December 2021, but was delayed due to the stock market crash due to the Federal Reserve's quantitative tightening.
The high-profile debut will be a big test for the IPO market, where investors are seeing some green shoots, thanks to growing bets on a soft landing.
“If Reddit's trading is bad, it will cast a shadow on the IPO market,” said Julian Klimochko, CEO of alternative investment solutions firm Accelerate Financial Technologies. “We will suspend our efforts,” he said.
The stock opened at $47 per share, compared to the public offering price of $34 per share.
Allocation to retail at risk
Reddit's popularity rose to new heights with the 2021 “meme stocks” craze, when a group of retail investors collaborated on its forum “wallstreetbets” to buy shares in heavily shorted companies like GameStop.
As part of its plan to reward its user base, Reddit reserved 8% of the offering's shares for eligible users and moderators, certain board members, and friends and family of employees and directors.
It also offers some shares to retail investors through online brokerage platforms Robinhood, SoFi Morgan Stanley Wealth Management, and Fidelity Brokerage Services.
But analysts said the move came with risks. Retail traders who want to gain exposure to newly listed companies, who are typically locked out of bidding in IPOs, buy shares only at the start of trading, which can lead to first-day selloffs.
Allowing early access to an IPO may reduce some demand. Such buyers also do not have a lock-up period and may choose to sell when the stock opens, potentially increasing price volatility.
“I don't know of any company that really makes money by allocating stock to users,” said Alan Vaxman, founding partner at investment firm Launchbay Capital.
Stocktwits.com, a social media company that analyzes the volume of posts and messages on the platform related to companies' ticker symbols, found retail sentiment on Reddit to be “very bullish.”
But the discussion on Reddit's WallStreetBets forum was more complicated, with some users saying they would short the stock after trading began.
cultural phenomenon
Since its founding in 2005, Reddit has become one of the cornerstones of social media culture. Its iconic logo depicting an alien on an orange background is one of his most well-known symbols on the internet.
Co-founder and CEO Steve Huffman said 100,000 online forums, known as subreddits, offer a variety of content, from the sublime to the ridiculous, from the trivial to the existential, to the humorous. They can converse on a wide range of topics, from the trivial to the serious.
Huffman himself wrote in a letter that he sought help from one of the subreddits to quit drinking. Former U.S. President Barack Obama also conducted an interview with users of the site in 2012, called an “AMA” (“Ask Me Anything”), in internet parlance.
Josh White, an assistant professor of finance at Vanderbilt University, said the tech stock frenzy could help Reddit get off to a good start.
“There aren't a lot of big technology IPOs, and those IPOs tend to be very popular because it's hard to buy that kind of growth,” White said.
But despite its cult status in the social media world, the company has not been able to replicate the success of larger rivals Metaplatforms' Facebook and Elon Musk's X.
The company said it is in the “early stages of monetizing the business” and has not yet turned a profit for the year. Analysts said investors will scrutinize the roadmap to profitability.
“The real news will come after the first earnings report. Where are they going? What are the results? What changes are they going to make?” said Leena Agarwal, director of Georgetown University's Psaros Center for Financial Markets. . policy.
(Reporting by Niket Nishant in Bengaluru; Editing by Arun Koyur and Anil D'Silva)
