Reddit’s Upcoming IPO: Upsides and Downsides

The ‘Front Page of the Internet’ is heading for a much-anticipated initial public offering (IPO). Under the ticker symbol RDDT on the New York Stock Exchange (NYSE), Reddit will likely gather $6.5 billion in valuation. According to insider sources relayed to Reuters, this would place RDDT shares within the $31 – $34 range per share.

Investors’ enthusiasm for the Reddit IPO would push it into ‘oversubscription’ territory. This means that for every share available, investors would apply to buy up to five shares. The Reddit IPO rumors popped up in December 2021, valued at $10 billion via a private fundraising round.

On February 22nd, 2024, the San Francisco-based social media company filed the S-1 registration form with the Securities and Exchange Commission (SEC) as the first step toward going public.

If materialized ending March 31st, would RDDT be a good long-term investment? Or will it suffer the volatile fate of meme stocks?

Reddit’s Fundamentals Explained

Before the emergence of Big Tech, people had to interact with each other across messengers and disjointed forums, each having specialized in specific topics, requiring individual accounts. In the 2010s, using Google (NASDAQ:GOOGL) or Facebook (NASDAQ:META) accounts as a login shortcut to such social media sites became common.

However, Reddit began streamlining the forum experience early on in 2005. Since then, the platform has grown to over 100,000 forums, dubbed subreddits, or communities, with over 267 million weekly active unique visitors. This made it the “Front Page of the Internet” as the natural evolution of content generation and exploration within a single platform.

Such was the success of Reddit that when its moderators went on a blackout on June 11th, 2023, protesting fees for third-party data access, Google search itself became crippled. In the S-1 filing, the company noted some of Reddit’s high points as a social catalyst and coordination vessel.

Looking to monetize this potential, Huffman is betting on a $1 trillion digital advertising market, poised to grow at $1.4 trillion in 2027 at a compound annual growth rate (CAGR) of 8%, per S&P Global Market Intelligence data.

Reddit’s Business Model Moving Forward

Despite efforts, Reddit has yet to turn in a profitable year. Although it increased its revenue to $800 million in 2023, a 20% year-over-year uptick, it still churned ~ out a $90.8 million loss. This was despite nearly doubling the research and development budget from $4.68 million to $8 million and increasing the sales and marketing budget from $1.76 million to $4.34 million.

Reddit ARPU