April 19, 2024

Reddit, the irreverent social media platform home to tens of thousands of forums, plans to raise up to $748 million in its initial public offering (IPO) that has been years in the making.

Reddit first filed to go public through a confidential public offering prospectus in late 2021, when it had been valued at about $10 billion. Under the terms disclosed in a March 11 filing with U.S. federal regulators, the company could now be valued at nearly $6.5 billion.

Reddit will debut on the New York Stock Exchange and trade under the ticker symbol “RDDT.” It’s expected that Reddit will go public sometime this month or as soon as next week.

When it does land on the stock market, it will do so as the first major U.S. social media company to go public in years. Pinterest was the last platform to attempt an IPO, launching on the NYSE in 2019 with a $12.7 billion valuation.

Reddit’s backstory

Reddit was founded in 2005 by Alexis Ohanian and Steve Huffman at the University of Virginia, where the men were college roommates. The duo say they sought to create a “front page of the internet,” one that would allow users to submit and rate articles that would be displayed on Reddit’s homepage.

Since then, the social media platform has evolved to host more than 100,000 active communities and 73 million daily active unique visitors. These communities — known as subreddits — are miniature forums divided by topics, such as r/history or r/dogpictures. People who engage and interact with these forums are called Redditors; some volunteer to become moderators, users tasked with setting and enforcing rules in each subreddit.

Ohanian and Huffman have left and rejoined Reddit several times over the years. Most recently, Ohanian stepped down from Reddit’s board of directors in June 2020 to diversify the board’s leadership, while Huffman is currently CEO.

“I have never been more excited about Reddit’s future than I am right now,” Huffman said in a letter attached to Reddit’s S-1 regulatory filing.

The key players

According to its latest filing with U.S. regulators, Reddit plans to offer 22 million shares at between $31 and $34 per share. Roughly 15.3 million shares will be Class A common shares, while insiders like Huffman and COO Jen Wong own 6.7 million shares.

Media mogul Steven Newhouse owns just 16,182 Class A shares but retains most of Reddit’s Class B voting shares through his Advance Magazine Publishers. In addition to its stake in Reddit, Advance owns Condé Nast and is one of the largest shareholders in Charter Communications and Warner Bros. Discovery.

Sam Altman, the CEO and newly reinstated board member of OpenAI, owns nearly 790,000 Class A shares and 11.3 million Class B shares. Tencent, the Chinese tech giant behind WeChat and League of Legends, invested $150 million in Reddit in 2019; Tencent and its affiliates own 11.1 million Class B shares and 4.3 million Class A shares.

Reddit has set aside about 1.76 million Class A shares for any Redditors who created their accounts before Jan. 1 and want to participate in the IPO. In its filing, the company warned Redditors that their participation in the IPO “could result in increased volatility in the market price” of its Class A common stock.

“We want this sense of ownership to be reflected in real ownership — for our users to be our owners. Becoming a public company makes this possible. With this in mind, we are excited to invite the users and moderators who have contributed to Reddit to buy shares in our IPO alongside our investors,” Huffman said.

The IPO counts Goldman Sachs, Morgan Stanley, J.P. Morgan, Citigroup, and Bank of America Securities as some of its underwriters.

An ‘AI story’

It’s hard to miss that the tech world is undergoing an artificial intelligence boom, and — like practically every company — Reddit is trying to cash in.

In his letter to potential investors, Huffman notes that “Reddit’s vast and unmatched archive of real, timely, and relevant human conversation on literally any topic is an invaluable dataset for a variety of purposes.” Just last month, Google and Reddit struck a $60 million-per-year deal to let Google train its AI models on Reddit’s user-generated content.

In April 2023, Huffman grumbled that the unauthorized use of Reddit’s content is “something we have a problem with.” To remedy that, Reddit began charging companies that scrape its data for AI training purposes and fail to “return any of that value.” The move instantly sparked protests from communities across Reddit, although the company quickly crushed them.

“They talk a lot about selling their data to large language models,” Rainmaker Securities managing director Greg Martin told Yahoo! Finance. “I think they’re trying to tell more of an AI story than just a media story, but the challenge they have is that 98% of their revenues are advertising.”

Where’s the money?

The vast majority of Reddit’s annual revenue comes from advertising across its subreddits.

Reddit recorded annual sales of $804 million in 2023, up from $666.7 million in 2022, according to a regulatory filing. A whopping $788,782 came from advertising in 2023, while $652,562 in advertising revenue was recorded in 2022. That’s roughly 98% of Reddit’s annual revenue.

The majority of that revenue also comes in from the United States; in 2023, $651,378 in revenue was attributable to the U.S., while the remaining $152,651 was listed as recorded as “rest of world.”

The company noted a net loss of $90.8 million in 2023, a narrower loss than its $158.6 million net loss in 2022. Reddit has not achieved profitability for an entire year, although it did achieve a profit in the fourth quarter of 2023.

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