Reddit IPO: How Is Reddit’s Stock Faring?

Initial Public Offerings (IPOs) are arguably some of the most anticipated stock market events. This was especially true for popular companies such as the social news and web content forum giant Reddit, which went public on Thursday, March 21. 

The IPO was considered the first social media company IPO since Pinterest's (PINS) IPO back in 2019 and here’s what you need to know about it:

What Is Reddit?

Reddit, which is famously known for its controversial online “communities” and discussions, is an American social media website or hub that includes, content rating, social news, and social network forums.

Reddit was established in 2005 by Steve Huffman and Aaron Swartz as a social content rating site, similar to “Digg,” and covers a wide range of topics like sports, politics, and trading.

Furthermore, the company is owned by a global media company called ‘Condé Nast Publications’ and is invested in by companies such as OpenAI, Fidelity, and Tencent.

Why Was Reddit’s IPO Considered Important?

Generally speaking, an IPO is deemed important for the following reasons:

• It can potentially help a company raise more capital. This is because going public provides traders with the opportunity to invest in the shares of the company.

• It can potentially improve a company’s public image.

• It can improve lending terms for companies as they become more reputable and credible.

• It can provide the company with more revenue streams.

Nonetheless, it is important to note that the factors mentioned above are not certain and that IPOs have their challenges and risks. Any company going public is expected to adhere to the following:

• Disclosure agreements.

• Meeting shareholders’ needs.

• Compliance and regulatory requirements.

In addition, a company going public may also be at risk of insider trading and confidentiality breaches. As such, traders and investors alike may want to consider these factors before approaching IPOs. Moreover, it is important to note that the effects of Reddit’s IPO are yet to be determined as this event is still in its early stages, and only time will tell what actually lies ahead for this company.

What Do Reddit Users Think of the IPO?

Interestingly, while Reddit's IPO was a welcome and exciting concept to many, a large number of Reddit users seemed to disapprove of this event. Many Reddit forums, such as the trading-focused subreddit 'r/WallStreetBets,' were concerned about the implications of this IPO. 

They were mainly concerned with the possibility of Reddit needing to increase its income to meet investors' expectations, a prospect that may lead to increased advertising in the app, which seems to deter users.

Whether or not their concerns are justified is an interesting question.

Reddit’s Performance and Business Model

The company essentially runs on a UGC (User Generated Content) model that resembles Facebook and X (formerly Twitter) which is to “get people to give you content for free and sell ads on that content.”

Accordingly, Reddit generates revenue primarily through advertising. Additionally, it also earns money from providing ad-free premium memberships.

However, unlike its social media counterparts, Reddit’s monetization and advertising are often met with hurdles as the content presented on its forums is more controversial and harder to monetise. 

It may also be worth noting that Reddit is considered one of the US’ most-visited websites with a whopping number of about 73.1 million daily active users. Moreover, the company’s revenue grew by over 21% last year.

Despite these positive numbers, it is important to keep in mind the fact that Reddit is still not considered profitable and that it was revealed in a US IPO filing that the company’s net loss reached $90.8 million last year.

How Is Reddit Faring Post Its IPO?

While the long-term effects of Reddit’s IPO are yet to be seen, Reddit ended its first trading day up 48% higher. These gains continued on Monday, March 25, as Reddit’s shares soared by about 30%. 

Furthermore, in the meantime, this IPO seems to have had a positive impact on Reddit investors who gained about $750 million in the IPO, while Redditors combined (Reddit users) earned millions of dollars. 

Interestingly, one of Reddit’s most famous investors is OpenAI’s CEO, Sam Altman, who grew his stake in the company to $613 million, compared to the previous $200 million. 

Whereas it is unclear whether or not this momentum would be sustainable, some market watchers like Lo Toney believe that this IPO may be “a positive sign not only for Reddit” but “for the tech industry and what it might mean for future IPOs.”

The Reddit-Google Partnership

Besides the IPO, traders and investors may want to monitor the recent expansion of the partnership between Google and Reddit, whereby Google announced that it’s “deepening” its partnership with Reddit through a new cloud computing endeavour that allows the integration of AI functions using Vertex AI to improve the search on the Reddit platform. Additionally, Google has access to “fresher” information through having access to Reddit’s Data API. (Source: Google)

Conclusion

All in all, while Reddit’s IPO seems to have its own advantages, it is important to note that may also have drawbacks, and there are many who seem apprehensive about the potential for its long-term success. Only time will tell what the future holds for this social media giant.