Shares of Reddit opened 38% higher in their debut on the New York Stock Exchange on Thursday, valuing the social media platform at $8.87 billion.
The San Francisco-based company priced its IPO at the high end of the $31 to $34 range.
The IPO valued Reddit at $6.4 billion, while the company and its selling shareholders raised $748 million.
Reddit's long-awaited entry as a public company has been in the works for more than two years.
In December 2021, the company confidentially filed for an IPO, but the stock price decline due to the Federal Reserve's quantitative tightening caused a delay.
Reddit mascot Snoo rings the opening bell on Thursday. AFP via Getty Images
The eye-catching debut will be a major test for the IPO market, where investors are starting to see gains thanks to increasing bets on a soft landing.
“If Reddit trades poorly, it will cast a shadow over the IPO market.
“Many companies will pause their IPO initiatives,” said Julian Klymochko, CEO of alternative investment solutions provider Accelerate Financial Technologies.
Shares opened at $47 apiece, compared to the IPO price of $34 apiece.
Risky retail allocation
Reddit's popularity reached new heights during the “meme stock” saga of 2021, when a group of retail investors collaborated on its forum “wallstreetbets” to buy shares of heavily shorted companies like GameStop.
As part of its plan to reward its user base, Reddit has reserved 8% of the shares offered for eligible users and moderators, certain board members, and friends and family members of its employees and directors.
The company has also offered some stocks to retail investors through online brokerage platforms Robinhood, SoFi Morgan Stanley Wealth Management and Fidelity Brokerage Services.
However, analysts say the move is fraught with risks.
Shares of Reddit opened 38% above market price. AFP via Getty Images
Retail traders, who typically can't bid on an IPO, don't buy shares until they begin trading because they want to gain exposure to a newly public company, which could cause shares to rise on the first day.
Providing early access to the IPO could dampen demand somewhat.
Such buyers also have no lock-up period and could choose to sell when the stock begins trading, potentially increasing price volatility.
“I don’t know of a single company that really benefits from allocating shares to its users,” said Alan Vaksman, founding partner of investment firm Launchbay Capital.
Stocktwits.com, the social media company that analyzes posts and message volumes related to a company's ticker symbol on its platform, showed retail sentiment toward Reddit was “extremely bullish.”
Reddit was launched in 2005. Above: CEO Steve Huffman. REUTERS
But discussion on Reddit forum wallstreetbets was more mixed, with some users saying they would sell the stock once it begins trading.
Cultural phenomenon
After its launch in 2005, Reddit became one of the cornerstones of social media culture.
Its iconic logo – an alien with an orange background – is one of the most recognizable symbols on the internet.
Its 100,000 online forums, called “subreddits,” enable conversations about topics ranging from “the sublime to the ridiculous, the trivial to the existential, the comical to the serious,” according to co-founder and CEO Steve Huffman.
Huffman (center) stands with employees on the trading floor of the New York Stock Exchange. Getty Images
Huffman himself turned to one of the subreddits and asked for help to stop drinking, he wrote in his letter.
Former President Barack Obama also conducted an “AMA” (“Ask Me Anything”), Internet parlance for an interview, in 2012 with the site's users.
The hype around tech stocks could get Reddit off to a good start, said Josh White, an assistant professor of finance at Vanderbilt University.
“We don’t get a lot of big tech IPOs. “These tend to be very popular because it’s difficult to buy that kind of growth,” White said.
“If Reddit does poorly, it will cast a shadow over the IPO market,” one analyst said. `
But despite its cult status in the social media world, the company has failed to replicate the success of its larger rivals, Meta Platforms' Facebook and Elon Musk's X.
The company said it was “in the early stages of monetizing its business” and had not yet turned an annual profit.
Analysts said investors would be closely scrutinizing the path to profitability.
“The real news will come after the first earnings release – where are they going, what are the results, what changes are they going to make,” said Reena Aggarwal, director of Georgetown University's Psaros Center for Financial Markets and Politics.
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