Social media platform Reddit (RDDT.N) is poised for its much-anticipated market debut on the New York Stock Exchange this Thursday, signaling a significant moment in the moment of initial public offerings (IPOs) and drawing attention to investor sentiment towards newly listed companies in 2024.
The San Francisco-headquartered company has set the price of its IPO at the upper limit of the previously announced range of $31 to $34. This valuation places Reddit at a notable $6.4 billion, with the IPO generating $748 million for the company and its existing shareholders.
Reddit’s journey to becoming a publicly traded entity has been a lengthy one, spanning over two years. The company took the initial step by confidentially filing for an IPO in December 2021. However, the plans were put on hold due to a stock market downturn triggered by the Federal Reserve’s tightening monetary policy.
The highly anticipated debut of Reddit on the stock market will serve as a crucial litmus test for the IPO landscape. Investors are cautiously optimistic, observing promising signs amid speculation of a gradual economic slowdown.
Julian Klymochko, CEO of Accelerate Financial Technologies, emphasized the significance of Reddit’s performance in the IPO market. He stated, “If Reddit trades poorly, it will cast a shadow over the IPO market. Many companies will hit pause on their IPO initiatives.”
Retail Allocation with High Risk
Reddit experienced a surge in popularity during the “meme-stock” frenzy of 2021, where retail investors united on its forum “wallstreetbets” to purchase shares of heavily shorted companies such as GameStop (GME.N).
In a move aimed at acknowledging its user community, Reddit has earmarked 8% of the shares available for eligible users and moderators, specific board members, as well as associates and relatives of its employees and directors.
It has also made shares available to retail investors through online brokerage platforms such as Robinhood (HOOD.O), SoFi (SOFI.O), Morgan Stanley Wealth Management, and Fidelity Brokerage Services.
However, analysts have cautioned that this move is not without risks. Traditionally excluded from participating in IPO bidding, retail traders eager to invest in a newly public company often wait until the shares are actively trading, potentially causing a surge in price on the first day of trading.
Providing early access to the IPO to retail investors could potentially dampen demand. Furthermore, these retail investors are not subject to a lock-up period and may choose to sell their shares once trading begins, potentially exacerbating price volatility.
Alan Vaksman, founding partner at Launchbay Capital, expressed skepticism about the benefits of allocating shares to users, stating, “I don’t know one company which really benefits from allocating shares to their users.”
Retail sentiment for Reddit on Stocktwits.com, a social media platform that analyzes discussions related to stock symbols, was reported as “extremely bullish.” However, the sentiment on Reddit’s “wallstreetbets” forum was more mixed, with some users indicating intentions to short the stock after it begins trading.
Explore the impact and significance of cultural phenomena
Since its inception in 2005, Reddit has solidified its position as a cornerstone of social media culture. Instantly recognizable by its iconic logo—a whimsical alien set against an orange backdrop—it has become one of the internet’s most iconic symbols.
With over 100,000 online forums known as “subreddits,” Reddit serves as a platform for discussions spanning the entire spectrum of human interests, as co-founder and CEO Steve Huffman describes it, from the mundane to the profound, the trivial to the existential, and the lighthearted to the solemn.
Huffman himself attests to the platform’s significance, revealing in a personal letter how he turned to one of Reddit’s subreddits for support in overcoming alcohol addiction. Even former U.S. President Barack Obama engaged with the platform’s users in a notable “AMA” (Ask Me Anything) session in 2012.
The current surge in interest in technology stocks bodes well for Reddit’s impending IPO, according to Josh White, assistant professor of finance at Vanderbilt University. “We don’t see many major tech IPOs, and those that do emerge tend to garner significant attention due to the allure of their growth potential,” White remarked.
Despite its cult-like following in the era of social media, Reddit has yet to match the extraordinary success of its larger competitors, such as Meta Platforms’ Facebook and Elon Musk’s X.
The company has openly acknowledged its ongoing efforts to monetize its operations and has yet to achieve profitability on an annual basis. Analysts anticipate that investors will closely scrutinize Reddit’s roadmap to profitability, particularly following its first earnings call.
“The real story will unfold after the initial earnings call—where Reddit is headed, what financial results are emerging, and what strategic adjustments are on the horizon,” remarked Reena Aggarwal, director of the Georgetown University Psaros Center for Financial Markets and Policy.
