Reddit Plans Major IPO Amid Competition from TikTok, Facebook

Summary

  • Reddit is set to be the first major social networking site to go for IPO since Pinterest in 2019.
  • The San Francisco-based company is planning its public filing in late February, the launch of its roadshow in early March, and completion of the IPO by end of March.
  • Reddit, which was privately valued at about $10 billion in a funding round in 2021, will also be testing its users’ willingness to back the company’s stock market debut.
  • The company planned to hold back the IPO until it neared profitability, with bouts of market volatility over the last two years also contributing to the delay.
  • The timing and pricing of the Reddit public offering could impact the trading and valuation of other social media and technology stocks.

Reddit, known for its active discussion groups voted by users, is paving the way for a major social media company’s IPO, a feat not seen since Pinterest’s public listing in 2019. The move comes amidst tough competition for advertising revenue from social media giants such as TikTok and Facebook.

The upcoming IPO could test the mettle of Reddit’s user-investors, who have historically influenced numerous “meme” stock rallies over the past few years, including those of retailer GameStop and movie chain AMC Entertainment.

Reddit’s IPO Journey

After filing confidentially for its proposed IPO in December 2021, Reddit intends to make its public filing in late February, initiate its roadshow in early March, and wrap up the IPO by March-end. It’s noteworthy that in 2021, the company was valued roughly at $10 billion and seeks to sell nearly 10% of its shares in the IPO.

Meanwhile, people familiar with the matter cautioned that Reddit’s IPO timing could shift, as has happened in earlier instances.

Reddit’s Business Model

Founded in 2005 by Steve Huffman and Alexis Ohanian, Reddit primarily monetizes through ads and also offers premium access at $5.99 per month. However, as admitted by Huffman in June 2021, the company is yet to break even.

Until now, Reddit has held off its plans on pulling the IPO trigger until it is closer to profitability. The reason behind the company’s previous postponements reportedly involves market volatility that, in the past two years, has shuttered the IPO market.

According to a report, Reddit is projected to earn slightly more than $800 million in advertising revenue in 2023, which is a 20% rise from the prior year.

Impact on the Stock Market

The timing and pricing of the Reddit public offering could vary the trading and valuation of other social media and technology stocks. In the past year, shares of social media companies witnessed a significant rally, with Meta Platforms’ stocks more than tripling in value, while Snap’s shares rose 60% during the same period.

Other financial assets and forex markets could be indirectly affected based on investor sentiment and how the Reddit public offering progresses.

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