Niket Nishant, Manya Saini and Echo Wang
(Reuters) – Reddit is aiming for a valuation of up to $6.4 billion in a U.S. initial public offering (IPO), the social media platform said on Monday, as the company nears one of the most anticipated stock market debuts in years. .
The company, along with some of its existing investors, plans to sell about 22 million shares at $31 to $34 each to raise up to $748 million.
The IPO, a key litmus test of investor appetite for new listings, comes more than two years after the company began preparing to go public. The IPO market’s recovery has been uneven this year.
The target valuation on a fully diluted basis is less than the $10 billion that Reddit was valued at after its 2021 fundraising.
Since its launch in 2005, Reddit has become one of the cornerstones of social networking culture. Its iconic logo, featuring an alien on an orange background, is one of the most recognizable symbols on the Internet.
According to co-founder Steve Huffman, its 100,000 online forums, called “subreddits,” allow for discussions on topics ranging from “the sublime to the ridiculous, the trivial to the existential, the comic to the serious.”
Huffman himself turned to one of the subreddits for help in stopping drinking, he wrote in his letter. Former US President Barack Obama also gave the internet lingo “AMA” (Ask Me Anything) to an interview with the site’s users in 2012.
The company’s influential communities are best known for the 2021 “meme stock” saga, in which several retail investors banded together on the Reddit forum “wallstreetbets” to buy shares of heavily shorted companies such as video game retailer GameStop (NYSE:).
The episode undermined hedge funds that had bet against the stock and made retail traders a force to be reckoned with. It was also featured in the 2023 film starring Seth Rogen.
To gain access to the retail base, Reddit has reserved 8% of the total shares offered for eligible users and moderators on its platform, certain board members, and friends and family members of its employees and directors.
Such buyers will not be subject to a lock-up period and may decide to sell their shares on the first day of trading, potentially increasing price volatility.
“This is a unique IPO, and what happens with it will be driven in part by the hype around the platform,” said Rina Aggarwal, director of the Psaros Center for Financial Markets and Policy at Georgetown University.
Morgan Stanley, Goldman Sachs, JPMorgan and Bank of America Securities are the lead underwriters for the offering. Reddit plans to list on the New York Stock Exchange under the name RDDT.
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Despite its cult status among followers, Reddit lags behind its contemporaries such as Meta Platforms (NASDAQ:) Facebook and Twitter, now known as X.
The company has never turned a profit and previously said in its filing that it was “in the early stages of monetizing (its) business.”
According to Reddit, there were an average of 73.1 million daily active “unique users”—users who used its platform at least once a day—for the three months ending Dec. 31, 2023.
The company’s approach to content moderation has also become a stumbling block for advertisers.
It relies on volunteers from its user base to moderate content posted on its forums. Moderators can resign from their duties at any time, as in 2023, when some quit in protest of the company’s decision to charge third-party app developers for access to its data.
“There’s no doubt that Reddit, as a public company, will be under a lot more scrutiny in terms of their platform, what’s posted on the platform and how it’s monitored,” Aggarwal said.
“Regulators and policymakers are quite concerned about these issues.”