Reddit files for IPO. Here's why US consumers should invest in it - Hindustan Times

Reddit files for Initial Public Offering. Here's why US consumers should invest in it

Feb 23, 2024 01:43 PM IST

Reddit prepares for NYSE debut under symbol RDDT with plans for largest social network IPO since 2019, valued at $10bn.

Reddit, the popular online discussion platform, is gearing up for its debut on the New York Stock Exchange under the symbol ‘RDDT.’

How you can join the Reddit IPO (AP Photo/Tali Arbel, file)(AP)
How you can join the Reddit IPO (AP Photo/Tali Arbel, file)(AP)

The social media platform filed its prospectus with the Securities and Exchange Commission on Thursday, revealing its financial performance and shareholder structure.

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The company said it plans to go public in March, in what would be the largest initial public offering by a major social network since Pinterest in 2019.

According to Reuters, the company has not yet disclosed how many shares it will offer or at what price range, but it was valued at $10bn in a funding round in 2021.

ALSO READ| Reddit strikes $60M deal allowing Google to train AI models on its posts, unveils IPO plans

Why US consumers should invest in the IPO?

Reddit is one of the most visited websites in the world, with 267.5 million active weekly users, more than 100,000 active communities, and 1bn total posts, as of the end of 2023. The company reported a 21% increase in revenue to $367.6m in 2023, while narrowing its net loss to $90.8m from $158.6m in 2022.

The company’s US average revenue per user, or ARPU, was $3.42 for the last quarter of 2023, down 2% year over year. The company attributed the decline to the impact of the Covid-19 pandemic on its advertising business and the growth of its international user base, which has lower ARPU.

Another unique feature of Reddit’s IPO is that it will allow some of its most active users to buy shares in the offering. The company will allocate shares using a tiered system that rewards users who have “meaningfully contributed to Reddit community programs”, users who have completed a certain number of moderator actions, and users who have a minimum “karma” score – the points given to users by others on the platform for posting content.

This is a rare opportunity for Reddit users to own a stake in the company they love and help shape its future. Reddit’s IPO could be a lucrative investment for US consumers who believe in the potential of the platform and its community.

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What about Reddit's shareholders

The company’s largest shareholder is Advance Magazine Publishers, which owns 30.1% of the company, followed by Tencent, the Chinese internet giant, which owns 11%.

The third-largest shareholder is Sam Altman, the founder and CEO of OpenAI, a research organization that aims to create artificial intelligence that can benefit humanity. Altman owns 8.7% of the company and has 9.2% of the voting power.

Altman, who is also a former president of Y Combinator, a startup accelerator that backed Reddit in its early days, stands to make millions from Reddit’s IPO. He has been investing in the company since 2014, when he led a $50m funding round that valued Reddit at $500m.

Reddit’s IPO will be a test of its ability to compete with other social media platforms such as Facebook and Twitter, now known as X, which have larger user bases and higher revenues. Reddit has a loyal and engaged community but faces challenges such as moderating harmful content, dealing with online harassment, and diversifying its revenue streams.

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One of the ways Reddit plans to do that is by leveraging its data. The company said it entered data licensing arrangements with an aggregate contract value of $203m in January 2024. According to Reuters, one of its partners is Google, which will use Reddit’s content to train its AI models. One source said the deal is worth about $60m per year.

Notably, Reddit confidentially submitted its IPO filing in late 2021; however, challenging economic conditions and the underwhelming performance of listed technology stocks led to a postponement of the offering.

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