Reddit's IPO Gets Mixed Reviews

The IPO priced at $34 per share, raising $748 million, but opened for trading at $47 and closed its first day up 48% at $50.44. This initial performance gave the company a market capitalization of around $8 billion, a significant jump from its $6.4 billion IPO valuation. Despite revenue growing 21% year-over-year to $804 million in 2023, Reddit has never been profitable, accumulating total losses of $717 million. The company reported a net loss of $90.8 million for 2023, though this was an improvement from the $158.6 million loss in 2022. A key part of its future strategy involves diversifying from its near-total reliance on ad revenue. Reddit recently signed a deal worth around $60 million annually to license its vast user-generated content to Google for training AI models. The company's S-1 filing highlighted unique operational risks, including its dependence on unpaid volunteer moderators to police content across more than 100,000 active communities. Analysts suggest Reddit will face pressure to dramatically increase spending on trust and safety to protect advertisers from unsuitable content. In an unusual move, Reddit's own user base was listed as a potential risk factor for investors. The filing specifically cited the potential for users on subreddits like r/WallStreetBets to coordinate and create "extreme volatility" in the stock's price for reasons unrelated to business performance. Major pre-IPO investors included Advance Publications (Condé Nast's parent company), Chinese tech giant Tencent, and OpenAI CEO Sam Altman, who was briefly Reddit's CEO. As part of its offering, Reddit allocated 8% of its shares for purchase by 74,000 of its most active users and moderators.