Reddit’s stocks skyrocket on the opening day of public trading

The company’s stock price surged by almost 70% from its initial public offering (IPO), potentially netting Condé Nast’s parent company nearly $1.4 billion

Social media platform Reddit’s (RDDT.N) shares closed their first day of trading in New York with a 48% increase, indicating a renewed interest from investors in initial public offerings (IPOs) of promising yet unprofitable companies.

Reddit’s shares ended the day 48% higher than their initial offer prices, valuing the social media platform at over $9 billion in a closely monitored debut. The stock reached a peak of $57.80 per share, a 70% increase, before settling at $50.44 at the close of trading.

Initially priced at $34 per share, Reddit’s IPO placed its market value at $6.4 billion, with the company and its selling shareholders raising $748 million.

The highly anticipated IPO had been under development for over two years. Reddit initially filed confidentially for an IPO in December 2021 but postponed it due to stock market volatility. Its current valuation is lower than in 2021 when it was valued at $10 billion during a private funding round.

Reddit’s strong debut in the market is poised to deliver a substantial gain for its largest shareholder, Advance Publications. The parent company of Condé Nast, which boasts popular magazines such as the New Yorker, Vogue, and Wired, is expected to earn up to $1.4 billion from the IPO. Advance purchased Reddit for $10 million just 18 months after its inception.

Last year, Reddit’s co-founder and CEO, Steve Huffman, received a compensation package valued at $193 million. The company’s other co-founder, Alexis Ohanian, who has long been the public face of Reddit compared to Huffman’s behind-the-scenes technical role, is not listed in the company’s filings with US financial regulators.

Major shareholders of Reddit also include the Chinese gaming giant Tencent, which holds an 11% stake in the company following a $300 million investment round in 2019; Fidelity, which owns 9.5% from various investments in Reddit; and Sam Altman, the CEO of OpenAI, who owns 8.7% after investing in 2014. Reddit participated in the first class of the influential Y Combinator startup accelerator program shortly after its founding in 2005. Altman later served as president of Y Combinator.

Experts suggest that given the scarcity of significant tech IPOs in recent years, the fervor for technology stocks is expected to provide Reddit with a strong start in the market. However, Julian Klymochko, CEO of alternative investment solutions firm Accelerate Financial Technologies, cautioned that investors will be closely monitoring the market in the coming weeks.

“If Reddit performs poorly in trading, it could dampen confidence in the IPO market,” Klymochko remarked. “Many companies may decide to pause their IPO plans.”

Since its establishment in 2005, Reddit has become a cornerstone of social media culture. Recognized for its logo featuring an alien head against an orange backdrop, Reddit is known as “The front page of the internet.”

The platform hosts over 100,000 online forums, known as “subreddits”, where discussions span a wide array of topics, from the trivial to the existential, as described by Huffman.

Huffman shared in a letter that he personally sought help to quit drinking from one of the subreddits. Additionally, in 2012, former US President Barack Obama participated in an “AMA” (“ask me anything”), an internet term for an interview, with Reddit users.

Despite its revered status in the realm of social media, Reddit has not managed to emulate the success of its larger counterparts, such as Meta’s Facebook and Elon Musk’s X. According to its filings, Reddit boasts approximately 73 million unique daily visitors. In contrast, Facebook claims that 2 billion people log into its app every day.

As part of its strategy to reward its user base, Reddit has set aside 8% of the shares available for eligible users and moderators, certain board members, as well as friends and family of its employees and directors.

The company has stated that it is “in the early stages of monetizing [its] business” and has yet to achieve an annual profit. Analysts predict that investors will closely examine its roadmap to profitability.

“The real developments will come after the first earnings call – what direction are they taking, what are the financial results, and what changes are they planning?” remarked Reena Aggarwal, director of the Georgetown University Psaros Center for Financial Markets and Policy.