San Francisco-based social media giant, Reddit, is gearing up for its initial public offering (IPO) in March, marking a significant move for the platform that has been contemplating this step for over three years. This development, if successful, would be the first IPO of a major social media company since Pinterest’s debut in 2019. The impending offering comes at a time when Reddit faces intensified competition for advertising dollars from prominent players like TikTok and Facebook.
IPO Plans and Timeline
Reddit, which confidentially filed for its IPO in December 2021, is set to make its public filing in late February. The company plans to kick off its roadshow in early March and aims to complete the IPO by the end of the same month, according to insiders familiar with the matter. Sources suggest that Reddit is eyeing the sale of approximately 10% of its shares in the IPO, though the final valuation will be determined closer to the listing date.
It’s worth noting that the sources caution that Reddit’s IPO timeline is subject to potential delays, a scenario that has occurred in the past. Founded in 2005 by Steve Huffman and Alexis Ohanian, Reddit has become synonymous with niche discussion groups and the unique practice of users voting “up” or “down” on content posted by other members.
Financial Snapshot and Revenue Model
While Reddit was valued at around $10 billion in a 2021 funding round, the company has yet to turn a profit, as revealed by Huffman in a Reddit post last June. Reddit generates its revenue primarily through advertising and offers premium access at $5.99 per month. The platform has faced challenges in profitability, citing user engagement with advertising as a factor.
The decision to delay the IPO until closer to achieving profitability reflects Reddit’s cautious approach. The market volatility that characterized the last two years also contributed to the company’s decision to hold back on its IPO plans. Reddit anticipates generating slightly over $800 million in advertising revenue in 2023, a substantial increase of over 20% from the previous year, according to a report by The Information.
Strategic Moves and User Sentiment
In a bid to diversify revenue streams, Reddit announced last year that it would charge companies for access to its application programming interface (API), a move that garnered mixed reactions from users. The API is widely used by technology companies to train large language models employed in artificial intelligence.
One potential challenge for Reddit’s IPO is gauging the willingness of its user base to support the company’s stock market debut. The platform’s users have played a notable role in fueling several “meme” stock rallies in recent years, notably with GameStop and AMC Entertainment Holdings.
Market Context and Competitor Performance
The IPO market for major social media companies has been relatively quiet since Pinterest’s debut in 2019. Reddit’s move comes at a time when large social media stocks have experienced a resurgence. Meta Platforms, the company behind Facebook, has seen its shares more than triple in value over the past 12 months, while Snap’s shares rose by 60% over the same period.
As Reddit navigates these dynamics and sets its sights on a March IPO, industry observers will be closely monitoring the company’s performance, the reaction of its user base, and the broader market conditions that could influence this high-profile debut.
Source: Reuters