Reddit, the company renowned for catalyzing the phenomenon of meme stocks, is now poised to make its own splash in the stock market. Last week, it filed for an initial public offering (IPO), promising an event that mirrors its platform’s essence—unconventional, bustling, and heavily reliant on its outspoken user base. Scheduled for the upcoming month, Reddit’s debut on the public market marks the first social media IPO since Pinterest in 2019 and the inaugural major tech IPO of the year.
What sets this IPO apart? Reddit intends to extend a unique opportunity to 75,000 of its influential users, granting them access to purchase shares at the IPO price—a privilege rarely extended to individual investors. Traditionally, companies going public allocate IPO shares to institutional investors, fostering stability by expecting them to hold onto the stock for extended periods, thus mitigating wild fluctuations in share prices. However, Reddit’s decision to involve its power users is a nod towards acknowledging and rewarding their significant contributions to the platform.
At the heart of Reddit’s structure lie its volunteer moderators, numbering around 60,000, who tirelessly manage its diverse communities, known as subreddits. Despite their crucial role, moderators remain unpaid. CEO Steve Huffman seeks to change this dynamic by offering them a stake in the company through share ownership, fostering a sense of ownership and alignment of interests. However, initial reactions from the moderator community indicate dissatisfaction, with many expressing skepticism about the IPO’s implications, hinting at potential discord within Reddit’s core community.
Despite Reddit’s status as one of the United States’ most visited websites, its financial performance has been lackluster compared to other social media giants. The company, founded in 2005, has struggled to achieve profitability, reporting $804 million in revenue in 2023, a fraction of its peers. The road ahead appears challenging, as indicated by a plethora of risk factors outlined in its IPO filing, drawing comparisons to the cautionary tales of Facebook and Twitter. To diversify revenue streams, Reddit is exploring avenues such as licensing its vast trove of user-generated content for training artificial intelligence models—a move underscored by a recent $60 million per year deal with Google. This strategic shift signals Reddit’s ambition to tap into new revenue streams and potentially reshape its financial trajectory.
