Reddit’s IPO was a success. Now what?

Before we get too far into it, let’s answer a burning question: Yes, someone dressed as Reddit’s alien mascot rang the NYSE’s opening bell on Thursday.

What happened: Reddit began trading on the New York Stock Exchange. Shares were up 38% from the initial US$34 price when trading opened and closed just above $50. That values the company, which already raised $748 million from the IPO, at roughly $9.5 billion.

Why it matters: Investors were hungry enough for a tech IPO that Reddit’s balance sheet and volatile user base didn’t hurt the stock market debut, as some had suspected. But that’s just day one, and now Reddit has to turn its attention to addressing those issues if investors are going to stay happy.

What’s next: The first thing Reddit has to deal with is that its ad-based business model has never been profitable. Even though the company’s revenue grew by 20% to $804 million last year, and its loss shrunk by 42.8%, a quarter of its revenue comes from just 10 advertisers.

  • Selling data to train AI is being tapped as a big new revenue stream, but there are questions about how long Reddit posts will be valuable to companies.

Yes, but: What is popular on Wall Street might be less popular with moderators, a group of 60,000 volunteers who not only run the platform’s content moderation, but have the power to organize revolts over business decisions they think sacrifice user experience.

  • A plan to reserve 8% of shares for mods and power users — an olive branch that would also make users want Reddit’s stock to do well — didn’t get a lot of uptake.

Zoom out: Reddit’s strong first day — plus a big IPO for AI company Astera Labs on Wednesday — could grease the wheels for other tech companies to go public. On the other hand, Stripe and Databricks recently held share sales for employees, so their expected IPOs might not happen any time soon.