Reddit IPO: Seeks a US$6.5B Valuation on NYSE

Reddit, the online forum platform, has unveiled its plan for an initial public offering (IPO) with a targeted valuation of US$6.5 billion. The capital raised from this endeavor will be allocated to strengthen and expand the platform following substantial growth in recent years. However, amid the optimism, the company cautions potential investors about the possibility of volatility in the value of its shares during the opening period of the market.

"We will go public to advance our mission and become a stronger company. We expect that going public will provide significant benefits to our community as well," said Reddit Co-Founder and CEO, Steve Huffman.

Reddit, and its existing shareholders, are endeavoring to raise approximately US$750 million by issuing around 22 million shares under the symbol "RDDT" on the New York Stock Exchange. This initiative, as per a recently disclosed document, is expected to have an anticipated price range between US$31 and US$34 per share. Among the 22 million shares being offered, Reddit intends to sell roughly 15.3 million, with the goal of raising US$520 million at the upper end of the price spectrum. Concurrently, existing investors, including CEO Steve Huffman, are planning to sell 6.7 million shares, which would collectively contribute US$229 million.

The offering structure, according to CNBC analysts, reflects a projected market capitalization by taking into account all fully diluted shares and not just those that will be available immediately after the IPO. Reddit has reserved about 1.76 million shares for certain users and moderators, known by the company as "Redditors," who wish to participate in the IPO. These Redditors will have the opportunity to purchase shares and sell them on the open market without being subject to the typical lock-up period that restrict the sale of shares for six months following a company’s IPO.

According to CNN, Reddit's IPO proves to be of great significance to the financial market by marking the first major tech debut of the year and the first social networking IPO since Pinterest's 2019 IPO. In 2021, Reddit confidentially filed its IPO prospectus with the US Securities and Exchange Commission (SEC), raising US$1.3 billion in a funding round in the same year, reaching a private market valuation of US$10 billion according to PitchBook.

In financial terms, Reddit has experienced substantial growth, with annual sales in 2023 amounting to US$804 million, marking a 20% year-on-year increase from US$666.7 million in 2022. The company also posted a net loss of US$90.8 million in 2023, a significant improvement from a net loss of US$158.6 million in the previous year.

However, Redditors participating in the IPO were cautioned about the potential for heightened volatility in the market price of the company's Class A shares. This strategy of involving users in the IPO mirrors the practices of other companies like Doximity, Rivian, and Airbnb, which have embraced community participation in their public offerings.

"We may experience a decline in the number of Redditors accessing our products and services and user engagement, which could result in the loss of advertisers and may harm our reputation, business, results of operations, financial condition, and prospects," Reddit stated based on the SEC’s statement.