About 76 million users checked in to one of Reddit’s roughly 100,000 communities in December, according to the regulatory disclosures required before the San Francisco company goes public. Reddit set aside up to 1.76 million of 15.3 million shares being offered in the IPO for users of its service.
As is IPO custom, the remaining shares are expected to be bought primarily by mutual funds and other institutional investors betting Reddit is ready for prime time in finance.
Altman stake
Reddit’s moneymaking potential has attracted some prominent supporters too, including OpenAI CEO Sam Altman, who accumulated a stake as an early investor that has made him one of the company’s biggest shareholders. Altman owns 12.2 million shares of Reddit stock, according to the company’s IPO disclosures.
By the tech industry’s standards, Reddit remains extraordinarily small for a company that has been around as long as it has. Thursday’s opening debut valuation of US$9 billion, for example, is still far below the US$1.2 trillion market value boasted by Meta Platforms — whose biggest social media service, Facebook, was started only 18 months earlier than Reddit.
Reddit has never profited from its broad reach while piling up cumulative losses of US$717 million. That number has swollen from cumulative losses of US$467 million in December 2021 when the company first filed papers to go public before aborting that attempt.
In the recent documents filed for its revived IPO, Reddit attributed the losses to a fairly recent focus on finding new ways to boost revenue.
Not long after it was born, Reddit was sold to magazine publisher Conde Nast for US$10 million in a deal that meant the company didn’t need to run as a stand-alone business. Even after Conde Nast parent Advance Magazine Publishers spun off Reddit in 2011, the company said in its IPO filing it didn’t begin to focus on generating revenue until 2018.
Big losses
Those efforts, centred mostly on selling ads, have helped the social platform increase its annual revenue from US$229 million in 2020 to US$804 million last year. But the San Francisco-based company also posted combined losses of US$436 million from 2020 to 2023.
Reddit outlined a strategy in its filing calling for even more ad sales on a service it believes will be a powerful marketing magnet for companies because so many people search for product recommendations there.
Selling users’ content for AI training
The company also hopes to bring in more money by licensing access to its content in deals similar to the US$60 million that Google recently struck to help train its artificial intelligence models. That ambition, though, faced an almost immediate challenge when the US Federal Trade Commission opened an inquiry into the arrangement.
Because Thursday only marked Reddit’s first day on the public market, Georgetown University financial markets expert Reena Aggarwal stresses the first key measure of success will boil down to the company’s next earnings call.
“As a public company now they have to report a lot more ... in the next earnings release,” she said. “I’m sure the market will watch that carefully.”
Reddit also experienced tumultuous bouts of instability in leadership that may scare off prospective investors. Company co-founders Steve Huffman and Alexis Ohanian — also the husband of tennis superstar Serena Williams — both left Reddit in 2009 while Conde Nast was still in control, only to return years later.
Huffman, 40, is now CEO. Although his founder’s letter leading up to this IPO didn’t mention it, Huffman touched upon the company’s past turmoil in another missive included in a December 2021 filing attempt that was subsequently cancelled.
“We lived these challenges publicly and have the scars, learnings, and policy updates to prove it,” Huffman then wrote. “Our history influences our future. There will undoubtedly be more challenges to come.”
