Reddit is (finally) ready to make its IPO

TL;DR: Reddit is coming to the stock market.

What happened: Reddit filed to list its IPO on the New York Stock Exchange under the RDDT ticker symbol. It’s unclear what valuation Reddit will seek when it debuts in March, but it has reportedly been advised to target at least US$5 billion.

  • Reddit previously filed in late 2021 but shelved its plans when the market got rough. The company was valued at US$10 billion at the time, but it was reportedly seeking US$15 billion in its share sale.

Why it matters: This is the first major tech IPO of 2024 after two years of historically low activity. A successful debut could grease the wheels for other companies that have been waiting out market volatility.

  • Annual revenue grew by 20% to US$804 million last year, and its loss shrunk by 42.8%. It also has 73 million daily active users, up from ~57 million at the end of 2022.

Yes, but: Reddit still lost US$90.8 million last year, and red ink could drag its valuation.

  • A risk Reddit identified in its filing is people reaching the site from a Google search instead of logging in to an account, who are boosting traffic but harder to monetize.
  • Also, even though training LLMs is an opportunity for Reddit, it might mean more people getting its knowledge through AI instead of its site/app.

Catch-up: Last year, Reddit changed its API policies to prevent AI companies from scraping its forums for training data without buying a licence, an attempt to diversify revenue and help its valuation. This week, it struck such a deal with Google, reportedly worth US$60 million annually, which we now know would be worth 7.5% of Reddit’s 2023 revenue.

  • Reddit’s communities of experts are an in-demand source of AI training data. If firms like OpenAI or Apple strike their own deals, Reddit could swing into the black.
  • Reddit is also reserving shares for 75,000 of its biggest users, an odd move that could appease people with a track record of leading protests against unwelcome changes — such as, let’s say, being monetized to train AI.

What’s next: Payment company Stripe, chat platform Discord, and buy-now-pay-later service Klarna are widely believed to be gearing up for the next big tech IPO.