In a move that has been anticipated for over three years, social media platform Reddit is preparing to launch its initial public offering (IPO) in March. This would be the first IPO of a major social media company since Pinterest’s debut in 2019. As Reddit and its competitors face fierce competition for advertising dollars from the likes of TikTok and Facebook, the success of its IPO will test the willingness of Reddit users to back the company’s stock market debut.
IPO Timeline
Reddit, which filed confidentially for its IPO in December 2021, is expected to make its public filing in late February. The company plans to launch its roadshow in early March and aims to complete the IPO by the end of March. However, it’s important to note that IPO plans can be subject to delays, as has happened in the past.
Valuation and Share Offering
As part of its IPO, Reddit is looking to sell approximately 10% of its shares. The company, which was valued at around $10 billion in a funding round in 2021, will decide on the IPO valuation closer to the time of the listing.
Reddit’s Journey
Founded in 2005 by web developer Steve Huffman and entrepreneur Alexis Ohanian, Reddit gained popularity for its niche discussion groups and unique voting system. Users can vote “up” or “down” on the content posted by other members, determining its visibility and popularity within the community.
Revenue and Profitability
While Reddit generates its revenue primarily through advertising, it also offers premium access for $5.99 per month. However, the company has yet to turn a profit. In a Reddit post last June, CEO Steve Huffman acknowledged the lack of profitability, attributing it to investments in the platform and users engaging less with advertising compared to other social media platforms.
Advertising Revenue and API Charges
Despite the lack of profitability, Reddit has projected growth in advertising revenue. The company is expected to generate slightly over $800 million in advertising revenue in 2023, a significant increase of more than 20% from the previous year.
To diversify its revenue streams, Reddit announced plans to charge companies for access to its application programming interface (API). The API is utilized by technology companies to train large-language models used in artificial intelligence. However, this decision upset some users who rely on third-party apps to access Reddit.
Competition and Market Trends
The IPO comes at a time when social media platforms face intense competition for advertising dollars. TikTok, with its rapidly growing user base, and Facebook, with its established presence in the advertising market, pose significant challenges to Reddit and its peers.
User Influence on Stock Market
Reddit’s IPO will also test the influence of its users on the stock market. Reddit’s platform has been a catalyst for numerous “meme” stock rallies in recent years, with users banding together to drive up the prices of stocks such as GameStop and AMC Entertainment Holdings. The success of the IPO will depend on whether these users choose to invest in Reddit’s stock market debut.
Market Volatility and Delayed Plans
Reddit’s IPO plans have been delayed in the past due to bouts of market volatility that resulted in the shutdown of the IPO market for extended periods. However, with the recent rebound of large social media stocks, driven mainly by a rally in technology stocks, the company sees an opportune moment to proceed with its IPO.
Meta Platforms and Snap Performance
The success of social media stocks can be observed through the performance of Meta Platforms, the company behind Facebook, and Snap. Over the past year, Meta Platforms’ shares have more than tripled in value, while Snap’s shares rose by 60% during the same period.
Conclusion
As Reddit prepares for its IPO in March, the company faces several challenges, including competition from established social media platforms and the influence of its user base on stock market performance. Despite the company’s lack of profitability, the anticipated growth in advertising revenue and the rebound of social media stocks provide a favorable backdrop for Reddit’s market debut. As the IPO unfolds, it will be interesting to see whether Reddit can capitalize on its unique community-driven platform and secure the support of its users as it enters the public market.
