Reddit has set the price of its shares at the upper end of the range it marketed, valuing the popular social media platform at $6.4 billion (£5 billion).
The company has successfully raised $748 million through the sale of 22 million shares priced at $34 each, positioning it among the largest initial public offerings (IPOs) by a social media entity. Trading of the shares is set to commence on the New York Stock Exchange on Thursday.
In a departure from the norm, Reddit offered a portion of its shares to its users, although the exact number of participants has not been disclosed.
Established nearly two decades ago, Reddit has evolved into one of the world’s most frequented websites, serving as an online forum for users to engage in discussions on various topics. As of December 2023, the platform boasted over 73 million users, according to company data.
However, Reddit’s IPO filing underscores a long-standing question regarding its revenue generation strategy from seemingly random interactions. Unlike some platforms, Reddit does not charge users for access; browsing, posting, and commenting are entirely free.
For years, Reddit struggled to achieve profitability, prompting inquiries into its valuation despite the absence of consistent earnings.
While the introduction of advertiser-friendly visual changes in 2017 marked a significant effort to monetize the platform, Reddit’s path to sustained profitability appears to hinge on leveraging AI models.
Companies like OpenAI have shown a willingness to pay for access to Reddit’s extensive trove of user-generated content to enhance their AI capabilities. Reddit disclosed licensing deals exceeding $200 million over the next two to three years, suggesting a promising avenue toward profitability.
However, challenges loom on Reddit’s horizon, including regulatory scrutiny over data licensing practices and patent infringement accusations from Nokia.
The company’s filing with the US Securities and Exchange Commission (SEC) acknowledges user engagement as a critical factor in its business success, highlighting potential risks associated with declining user base or engagement.
Despite occasional user discontent and threats of departure from the platform, Reddit’s dominance in the social media landscape, coupled with the absence of formidable rivals, provides a relatively stable foundation for its stock market valuation tethered to its vast user base.
