By MICHAEL LIEDTKE (AP Technology Writer)
SAN FRANCISCO (AP) — Reddit and its diverse marketplace of online communities is ready to enter the high-stakes world of the stock market.
The company set the price for its initial public offering (IPO) at $34 per share on Wednesday, and the shares will start trading on Thursday on the New York Stock Exchange under the ticker symbol “RDDT.” This event is likely to prompt a lot of discussion on Reddit’s own platform, as well as on competing social media sites.
The IPO will test the unique company’s ability to overcome a nearly 20-year history marked by continuous losses, management turmoil, and occasional user backlash in order to build a sustainable business.
The interest in Reddit comes primarily from a large audience that regularly visits the service to talk about a variety of topics, from funny memes to existential concerns, and to get recommendations from like-minded people.
According to the regulatory disclosures required before the San Francisco company goes public, around 76 million users engaged with one of Reddit’s approximately 100,000 communities in December. Reddit reserved up to 1.76 million of the 15.3 million shares being offered in the IPO for its users. The remaining shares are expected to be primarily purchased by mutual funds and other institutional investors, following the usual IPO practice, in the belief that Reddit is ready to enter the finance spotlight.
Reddit’s potential to make money has also attracted some notable supporters, including OpenAI CEO Sam Altman, who obtained a stake as an early investor, making him one of the company’s largest shareholders. According to the company’s IPO disclosures, Altman owns 12.2 million shares of Reddit stock.
Other early investors in Reddit have included PayPal co-founder Peter Thiel, Academy Award-winning actor Jared Leto, and rapper Snoop Dogg. None of them are listed among Reddit’s largest shareholders heading into the IPO.
By the standards of the tech industry, Reddit remains extremely small for a company of its age.
With its stock priced at $34 per share, Reddit will have a market value of $6.4 billion. In comparison, Meta Platforms — whose main social media service, Facebook, was started just 18 months earlier than Reddit — has a market value of over $1.2 trillion. Meta also generates annual revenue of $135 billion, while Reddit’s revenue remains below $1 billion.
And then there is this problem: Reddit has never made a profit despite its wide reach, accumulating total losses of $717 million. This number has increased from total losses of $467 million in December 2021, when the company first filed papers to go public before canceling that attempt.
In the recent documents filed for its revived IPO, Reddit attributed the losses to a relatively recent focus on finding new ways to boost revenue.
Shortly after its creation, Reddit was sold to magazine publisher Conde Nast for $10 million in a deal that meant the company didn’t need to operate independently. Even after Conde Nast parent Advance Magazine Publishers spun off Reddit in 2011, the company stated in its IPO filing that it didn’t start focusing on generating revenue until 2018. These efforts, mainly focused on selling ads, have helped the social platform increase its annual revenue from $229 million in 2020 to $804 million last year. However, the San Francisco-based company also posted combined losses of $436 million from 2020 through 2023.
Reddit explained a plan in its document to increase advertising revenue, believing that companies will see it as a strong marketing platform due to high product recommendation searches.
The company aims to make money by licensing its content, similar to Google's $60 million deal for AI training. However, this goal faced a challenge when the U.S. Federal Trade Commission opened an inquiry into the arrangement.
Reddit's management is looking into ways to profit from the growing e-commerce on the platform. The company believes that it can generate revenue based on the volume of commerce on Reddit, but did not provide details on how that would be achieved.
Reddit faced leadership instability in the past, which may deter potential investors. Co-founders Steve Huffman and Alexis Ohanian left Reddit in 2009 while Conde Nast was in control, only to return years later.
Huffman, now CEO, took over in 2015 after Ellen Pao resigned amid backlash to the banning of communities and the firing of Reddit’s talent director. Although Ohanian claimed responsibility for the firing and bans, Pao bore the brunt of the criticism, paving the way for Huffman to lead the company again.
Although Huffman's founder’s letter before the IPO didn't mention it, he acknowledged the company's past turmoil in another statement included in a December 2021 filing attempt that was later canceled.
Huffman wrote in 2021 that Reddit has made mistakes and faced challenges publicly, with the scars, learnings, and policy updates to show for it. He acknowledged that the company's history will influence its future and that more challenges are likely to come.
