Reddit's IPO Filing Shows Growth, But Questions Remain

Reddit made public its initial public offering (IPO) filing on Thursday, one day before its much-awaited scheduled March stock market debut in the United States. The social network firm said that its net loss decreased to $90.8 million and revenue growth was around 21% in 2023.

Nearly two decades after Reddit's debut, the IPO filing is a significant test for the platform, which still trails behind its social media peers in terms of economic success - Facebook and Twitter, now known as X.

In the three months that concluded on December 31, 2023, Reddit reported having an average of 73.1 million daily active users and 267.5 million weekly active users. The site had one billion total postings, according to the firm, and was utilized by over 100,000 active communities.

Reddit recorded a revenue increase of $804 million, up from $666.7 million a year earlier, and a lower net loss of $90.8 million for the year ending December 31 in the IPO filing.

Google, a division of Alphabet, has reached an agreement with San Francisco-based Reddit to allow Reddit's material to be used as training data for Google's artificial intelligence models. Based on information from one of the sources, the deal is worth around $60 million annually.

In a 2021 investment round, Reddit was valued at $10 billion; however, it is uncertain what price the firm would aim for when selling its shares in the upcoming weeks. In the IPO, it is anticipated to want to sell about 10% of its shares.

CEO Steven Huffman's Class B common stock, which is issuable upon meeting a vesting condition-that is, if Reddit reaches a $5 billion market capitalization value after the offering-was disclosed in the company's initial public offering filing.

According to reports, the social media company is anticipated to meet the value goal right away.

The Future of Reddit

Reddit's user base is significantly less than that of its competitors, despite the fact that it debuted around the same time as other social media pioneers like Meta, which runs Twitter and Facebook. Reddit's growth figures are likewise meager when compared to its more established social media competitors since the firm has had difficulty making money off of its network over the years.

Concerns over the company's policy for content control have also been raised; this has been a source of contention for sponsors. Facebook and TikTok are already fierce competitors for its advertising dollars.

On the other hand, Reddit's user base is devoted. In the last few years, its message boards have propelled a number of "meme-stock" rallies. The most notable of these occurred in 2021, when a group of retail traders conspired to ignite a sharp increase in the shares of heavily shorted firms, such as GameStop and AMC Entertainment Holdings.

Reddit was started in 2005 by web engineer Steve Huffman and businessman Alexis Ohanian, who is married to tennis player Serena Williams. Since then, the site has garnered support from a number of notable investors, including China's largest internet company Tencent Holdings (0700.HK) and venture capital firm Andreessen Horowitz. Rapper Snoop Dogg is one of the company's investors.

Reddit, which split off from the magazine company Conde Nast in 2011, gained notoriety mostly for its specialized discussion boards and its users' ability to "up" or "down" posts made by other users.

It has worked hard in recent years to cater to younger consumers, as seen by its 2020 acquisition of rival TikTok company Dubsmash.

Huffman stated in a June Reddit post that the business, which mostly makes money from advertising and also charges a monthly subscription for premium membership, has not yet turned a profit.

It had filed in confidence for the U.S. IPO in late 2021, but it had to postpone it due to challenging economic circumstances and the underwhelming performance of listed technology businesses.

In addition to over a dozen other banks, Morgan Stanley and Goldman Sachs have been selected as the principal underwriters for Reddit's initial public offering.