Reddit, a message board website with a community focus, filed to go public on Thursday. This makes it the first significant social media business to go on the stock market in years and a test for private companies following a decline in IPOs.
Reddit revealed its financial results in an offering prospectus before it started selling investors shares. The San Francisco-based business revealed that last year saw a decline in losses despite a more than 20% increase in revenue. It also said that there were over 100,000 active communities and 73 million daily users.
The 18-year-old company is scheduled to meet with possible investors to pique their interest in purchasing its shares, and the prospectus initiates a process to the stock market. In a few weeks, Reddit may list as a public company on the New York Stock Exchange with the ticker name RDDT. Two people familiar with the subject claim that Reddit’s financiers are attempting to value the company in its initial public offering (IPO) at least $5 billion. That is almost 50% of the $10 billion valuation that the business obtained in a private funding round in 2021. The pricing may possibly change in the coming weeks as the negotiations are still ongoing.
Reddit is the final social media company from a previous age to pursue the stock market, following the successful offerings of Facebook (2012), Twitter (2013), and Snap (2017). Since then, the social media landscape has evolved, coming under fire for spreading false information, inciting hate speech, and other issues. A few of the businesses have changed their names: Elon Musk purchased Twitter, renaming it X after taking it private in 2022, while Facebook changed its name to Meta.
Another highly anticipated move following a slowdown in initial public offerings is Reddit’s plan. Based on data provided by Renaissance Capital, only 108 companies in the US went public last year, or around 25% fewer than that of 2021. The largest tech products available at the end of the previous year included the supermarket delivery service Instacart and the chip designer Arm.
Reddit CEO Steve Huffman stated in a founder’s letter that was included with the prospectus, “We are going public to advance our mission and become a stronger company.” We anticipate that our community will gain significantly from going public as well. Our users feel a strong sense of responsibility for the communities they build on Reddit.
“This sense of ownership to be reflected in real ownership — for our users to be our owners,” Mr. Huffman continued, adding that “becoming a public company makes this possible.” Reddit announced that, should they choose to buy them, it will set aside a portion of its shares for 75,000 of its most active users at the I.P.O. price.
Reddit stated in its prospectus that its revenue for 2023 was $804 million, increasing around 21% from $666 million in the previous year. According to the prospectus, the company lost $90 million in 2023 as opposed to $158 million the previous year.
Advance Magazine Publishers, Tencent Cloud Europe, Vy Capital, Fidelity Management, and Sam Altman, the CEO of OpenAI and a former member of the Reddit board, are a few of its biggest investors.
Reddit has had a difficult and drawn-out journey to the public markets. Established in 2005 by Mr. Huffman and Alexis Ohanian in a University of Virginia dorm room, the website started out as a place where people could gather anonymously to talk about anything from guitars, makeup, and power washers to popular TV shows.
The website was distinctive in that it was primarily centered around close-knit, largely anonymous communities that were all supervised by volunteers who self-managed their forums, or “subreddits,” according to guidelines they had created. It gained notoriety for its “A.M.A.s,” or “ask me anything” sessions, in which popular personalities such as actor Nicolas Cage, Microsoft’s Bill Gates, and former President Barack Obama participated.
Over the years, the company has raised hundreds of millions of dollars in capital, with two financing rounds in 2021 raising over $410 million and $250 million, respectively. Tencent Holdings, Andreessen Horowitz, Sequoia Capital, and Fidelity Investments are among the investors. Reddit initially rejected selling ads and turning a profit, much like other early social networking initiatives. Rather, it concentrated on revenue streams derived from community initiatives, such as an e-commerce system created by users and rewards that users could purchase from one another. Those concepts are still relevant.
Reddit’s topic-focused communities eventually led to the platform accepting advertising. For example, brands such as Laneige focused advertisements to one of the busiest subreddits, Makeup Addiction, where members talk about cosmetics and application techniques.
The website has also developed a growing data licensing business on the back of its massive chat data corpus, which has grown in significance among the AI craze. Massive amounts of this kind of data are used to train A.I. models, making them more sophisticated. Reddit and Google signed a licensing agreement on Thursday. Reddit data has been utilized by Google to train and develop its artificial intelligence systems.
In the letter, Mr. Huffman stated, “We expect our data advantage and intellectual property to continue to be a key element in the training of” future artificial intelligence models. According to the filing, the corporation expects to make upward of $203 million from many undisclosed licensing agreements for the use of its data over the next three years.
The website has experienced some difficulties. Its initial failure to accommodate moderate communities sparked scandal after controversy, including its part in disseminating false information during the 2013 Boston Marathon bombing and its hosting of racist and misogynistic content in some of its smaller subreddits.When Reddit changed some of its policies and forbade outside developers from using the site’s material without paying for it, users revolted against the platform last year.
In recent years, Reddit has changed its stance on moderation and updated and enforced its standards more tightly, which has made it more appealing for advertisers to insert ads throughout the site.
Before Mr. Huffman rejoined the site’s leadership in 2015, the company had four chief executives over its first ten years of operation.
Reddit warned prospective investors about the difficulties and risks it might face as a publicly traded company. These risks included the emergence of massive language models and the underlying A.I. systems that might be used to synthesize and aggregate content from the site and allow users to view Reddit without ever visiting the website or seeing advertisements.
The market for digital ads, which is dominated by Google and Meta, may also make it tough for the startup to attract brands.
Given the difference between its platform’s capabilities and the best in class, Eric Seufert, an independent mobile analyst who keeps a close eye on social media businesses and advertising, believes Reddit may have a difficult time expanding its advertising business.
Additionally, the corporation issued a warning, stating that future uprisings or exits could negatively impact the platform since it was mostly relied on its community for platform moderation.
“We have a lot to do and a lot of opportunities,” Mr. Huffman stated.
