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The road to Reddit’s initial public offering has been a long one; in the 19 years since its founding, the social media giant has led many lives. It was an independent startup, and then it wasn’t, until it was again. It despised the idea of selling ads or censoring user content, but eventually found itself deeply pursuing both. It’s had half a dozen leaders, including current CEO Steve Huffman—also known by his username Spez—who is on his second tour of duty.
Now its post-IPO life has begun. Reddit shares surged as much as 60 percent before falling back in the company’s first hour of trading on the New York Stock Exchange, under the ticker RDDT. As a publicly traded company, Reddit will have to meet user and revenue growth expectations quarter after quarter or face the public wrath of investors. Huffman told NPR last year it was time for Reddit to “grow up and behave like an adult company.”
The IPO had valued Reddit at almost $6.5 billion, a haircut from the $10 billion the company was valued at back in 2021. Thursday’s run-up in shares pushed the market capitalization, however, to almost $8 billion at the time of writing.
Heading into the IPO, investors had worried that Reddit’s often rocky relationship with its users—the company suffered a user revolt last year that switched off thousands of subreddits—would also dog the platform at the opening bell. Reddit had reserved 8 percent of available shares for eligible users and moderators, threatening volatility if a majority dumped their shares on day one. If Redditors did sell, there was enough investor demand to absorb their shares, says Susannah Streeter, markets analyst at financial services company, Hargreaves Lansdown. “We might see volatility in the coming days but at the moment, it doesn't look that way.”
Some employees fear the company’s internal culture will turn more corporate, and users worry that profit-making pursuits will drown out the lively and dependable conversations that the influential online hub is known for. Speaking to Bloomberg from the New York Stock Exchange, chief operating officer Jen Wong said Reddit was focused on three markets for the future of its business: advertising, transactions between users, and selling its data to AI companies. “Reddit's corpus of information is incredibly important to the training of large language models,” Wong said, adding that the company was in possession of data that reflected 19 years of human experience, organized by topic. Reddit reported last week that the Federal Trade Commission had opened an inquiry into its sale of user data to AI giants.
A life-size version of Reddit’s alien mascot Snoo rang the opening bell of the New York Stock Exchange on Thursday, to cheers and applause. Reddit priced shares at $34 in its initial public offering on Wednesday, raising over $500 million for the company and more than $200 million for shareholders who sold some of their stakes in the sale. By Thursday afternoon in New York, those shares had jumped to $50. Stocks that surge on opening, however, have been known to slide dramatically later in the day.
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A big concern ahead of the public listing was that Reddit, the platform that gave birth to the memestocks of 2021, could also suffer the wild price swings caused by large numbers of investors coordinating their strategy over social media, including Reddit itself, on forums such as r/wallstreetbets.
Reddit’s IPO is a test of investor appetite for tech IPOs, which have been a rarity in recent years. Low interest rates had made raising and borrowing cash on private markets easy, and economic effects from the war in Ukraine and a slumping stock market had made it too risky to plunge into the stock market. “It's not quite the glory days of Facebook,” says Chris Beauchamp, chief market analyst at IG Group, adding that the company was still experiencing massive demand.
The last notable social media stock debut was Pinterest’s back in 2019. In a good sign for Reddit, which lost about $91 million last year, Pinterest shares are still trading about 80 percent above their IPO price—despite the company's remaining unprofitable, with a loss of nearly $36 million last year.
Second Exit
Reddit’s metamorphosis into a public company is the second time it stopped being a startup. Huffman and now estranged cofounder Alexis Ohanian founded Reddit in 2005 but sold it to publisher Condé Nast in 2006 just over a year later. Advance Magazine Publishers, parent of WIRED's publisher Condé Nast, still holds a 30 percent stake, a much larger share than other major stakeholders, which include Chinese tech giant Tencent and OpenAI CEO Sam Altman.
Since spinning out from Condé Nast, back into startup mode in 2011 and welcoming back Huffman in 2015, Reddit has grown steadily. About 73 million users visited the service each day on average last quarter. The service is home to over 100,000 communities on topics across news, entertainment, and science. Power users known as moderators, or mods, create and manage these subreddits. Users submit text, photos, and links to the forums, with votes and comments from fellow contributors helping determine what gets promoted in the community. A personalized news feed brings together content from the 20 or so communities that users on average follow.
Reddit’s challenge has been reining in the unsavory sides of that anything-goes culture. Hate speech has been prevalent on the platform in the past, and millions of users still come just to view pornography. The decentralized structure affords mods incredible power, and they’ve wielded that to temporarily shutter their communities when they disagree with strategies of Reddit’s executives—including a bitter battle last year.
Veteran users and employees have long wanted Reddit to improve the reliability of its platform and focus on core features, which the company has prioritized over the past year. But for a while, the company pursued new projects, including live video broadcasting and a betting prototype, that former employees have said turned out to be costly distractions.
The content moderation challenges also never seem to get easier. In addition to the feature upgrades, Reddit is having to focus on ensuring its forums aren’t overrun by ChatGPT-generated spam that detracts from the genuine conversation users crave. That’s not to mention still cracking down on conspiracy theories, ongoing hate, and pirated sports, anime, and music streams.
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Then there’s taking care of staff. In a poll last month on the anonymous forum app Blind, two thirds of nearly 200 apparent employees responding said they didn’t feel valued by the company. Reddit said in its investor prospectus that its labor relations are good.
The company has some runway to tackle the to-do list. Reddit had over $1.3 billion in working capital at the end of 2023, much of it raised through venture capital financing. The IPO cash will add to the pile and aid the company’s efforts to improve its offerings for advertisers. The company drew 98 percent of its $804 million in revenue last year from advertising.
More advertisers are making Reddit a permanent part of their strategy. A few are spending up to 10 percent of their annual online budgets there, says Natasha Blumenkron, vice president of paid social at performance marketing agency Tinuti. But she and other ad buyers say that to attract substantially more dollars, Reddit needs to grow its user base and also improve its tools that measure whether ads drove sales, closer to the standard of Meta and Google. That could require collecting more information about users—a strategy that privacy-minded Huffman is loath to pursue.
Updated March 21, 2024, 2:30 pm EDT: This story was updated with analyst comment and fresh pricing data.
