NATIONAL NEWS

Reddit has been around since the early days of social media. Here’s why it’s finally going public now

Mar 20, 2024, 5:50 PM

Funds raised from a successful IPO could help Reddit invest in key areas for growth. (	Sheldon Coop...

Funds raised from a successful IPO could help Reddit invest in key areas for growth. ( Sheldon Cooper/SOPA Images/LightRocket/Getty Images via CNN Newsource)

( Sheldon Cooper/SOPA Images/LightRocket/Getty Images via CNN Newsource)

(CNN) — Reddit, one of the original social media companies, is finally making its debut on the New York Stock Exchange — more than a decade after many of its peers.

It’s a major milestone for the nearly 20-year-old company, something Reddit has been preparing for since at least 2021, when it hired its first chief financial officer. It also marks the first social media company to go public in years, and its performance could be a signpost for other companies considering IPOs.

Funds raised from a successful IPO could help Reddit invest in key areas for growth, including building out new revenue streams as it seeks to stake a claim as a data provider for the burgeoning artificial intelligence language model industry. A successful public offering could also establish a sustainable ownership structure for a company with a history of ownership changes and leadership controversies.

But its success is far from guaranteed. Reddit has never turned a profit, and by its own admission, “we may not be able to achieve or maintain profitability in the future.” The company is also giving loyal users a chance to buy IPO shares, a move that’s “great for PR but practically risky,” according to Kamran Ansari, Venture Partner at investment firm Headline, because those users could cause volatility in the share price right out of the gate if they quickly sell the stock.

It’s also been a rough few years for the IPO market — and successful IPOs typically beget other successful listings. While 2021 was a record-breaking year for companies looking to make their public debuts on the US stock market, dealmaking on Wall Street has largely dried up since, as executives have contended with recession fears, elevated interest rates and rising geopolitical tensions.

While IPO activity is now trending higher — there have been 23 IPOs priced so far this year, a 15% change over last year — companies that have gone public have underperformed the S&P 500 by about two percentage points, according to data from the Renaissance IPO Index.

Reddit priced its shares at $34 each, the top of it’s range, according to multiple published reports. That would value the company at around $6 billion, less than the $10 billion valuation the company targeted on the private market in 2021 — which may be a reminder that in the age of continued high interest rates, money now comes at a higher cost.

“Reddit’s IPO marks the return of the junk IPO,” David Trainer, CEO of New Constructs, said in an email. “We think the company may never monetize its platform without angering its users and the entire premise of Reddit is user-generated content.”

Still, there may be no time like the present for Reddit to go public. The social media industry is bracing for a potential shakeup if a bill that could see TikTok banned in the United States — which has already passed the House — progresses further.

Some on Wall Street also believe Reddit has more room to grow, after increasing its user base by some 40% between 2021 and 2023.

“There’s really substantial growth potential when it comes to certain places outside the US, particularly ones where English is a primary language. India has been highlighted, for example, as a very substantial opportunity,” said Scott Kessler, global technology sector lead at research firm Third Bridge. He added that Reddit is available in fewer than 10 languages, meaning the company could also find new growth by making the platform accessible to more users around the world.

“The big challenge, of course, is not just user growth, but the related monetization,” Kessler said.

Among Reddit’s plans to better monetize those users is licensing their data to help train AI models. The company recently announced an AI licensing deal with Google that’s said to be worth $60 million per year.

And while the so-called “front page of the internet” certainly seems to have potential as a data source, some users appear frustrated with the idea of their content being sold off to train AI tools. And regulators have questions, too.

Reddit disclosed last week that the US Federal Trade Commission is looking into its plans to license data to AI firms, although the company said it does not believe it has violated US consumer protection law.

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Reddit has been around since the early days of social media. Here’s why it’s finally going public now