Reddit’s stock skyrockets on debut trading day

The company’s stock price surged by nearly 70% from its IPO, potentially netting Condé Nast’s parent company almost $1.4 billion

Reddit’s (RDDT.N) shares concluded their inaugural trading day in New York with a 48% increase, suggesting a renewed investor interest in IPOs of promising yet unprofitable companies.

The stock closed 48% higher than its initial offering price on Thursday, marking Reddit’s trading debut and valuing the social media platform at over $9 billion. It reached a peak of $57.80 per share, a 70% increase, before settling at $50.44 at the day’s end.

Initially priced at $34 per share, the IPO valued the San Francisco-based company at $6.4 billion, with Reddit and its selling shareholders raising $748 million.

The highly anticipated IPO had been in progress for over two years. Reddit filed for an IPO in December 2021 but postponed it due to stock market volatility. Its current valuation is lower than in 2021 when it was valued at $10 billion during a private funding round.

Reddit’s strong debut on the market is poised to yield a substantial gain for its largest shareholder, Advance Publications. The parent company of Condé Nast, which owns popular magazines such as the New Yorker, Vogue, and Wired, stands to profit as much as $1.4 billion from the debut. Advance purchased Reddit for $10 million just 18 months after its launch.

Last year, Reddit co-founder and CEO Steve Huffman received a compensation package valued at $193 million. However, the site’s other co-founder, Alexis Ohanian, who has long been the public face of the company compared to Huffman’s more technical role, does not appear in the company’s filings with US financial regulators.

Other significant shareholders of Reddit include the Chinese gaming giant Tencent, which holds 11% of the company following its leadership in a $300 million investment round in 2019; Fidelity, which owns 9.5% from various investments in the company; and Sam Altman, the CEO of OpenAI, who owns 8.7% after his investment in 2014. Reddit was part of the inaugural class of the influential Y Combinator startup accelerator program shortly after its establishment in 2005. Altman subsequently served as president of Y Combinator.

Experts predict that the current enthusiasm for technology stocks, fueled by a scarcity of significant tech IPOs in recent years, is likely to give Reddit a strong start in the market. However, Julian Klymochko, CEO of alternative investment solutions firm Accelerate Financial Technologies, warns that investors will closely monitor Reddit’s performance in the coming weeks.

“If Reddit trades poorly, it will cast a shadow over the IPO market,” Klymochko stated. “Many companies will hit pause on their IPO initiatives.”

Since its inception in 2005, Reddit has become a pivotal platform in social media culture. Recognizable by its logo—a stylized alien head on an orange background—Reddit has long branded itself as “The front page of the internet.”

Its 100,000 online forums, known as “subreddits,” facilitate discussions on a wide array of topics, spanning “the sublime to the ridiculous, the trivial to the existential, the comic to the serious,” as described by Huffman.

Huffman shared in a letter that he personally sought assistance from one of the subreddits to quit drinking. Additionally, former US President Barack Obama participated in an “AMA” (“ask me anything”), which is internet slang for an interview, with the site’s users in 2012.

Despite its revered status in the realm of social media, Reddit has struggled to match the success of its larger competitors, such as Meta’s Facebook and Elon Musk’s X. According to its filings, Reddit boasts approximately 73 million unique daily visitors. In contrast, Facebook reports that 2 billion people log into its app daily.

As part of its strategy to reward its user base, Reddit has set aside 8% of the shares for eligible users and moderators, specific board members, and friends and family of its employees and directors.

The company has stated that it is still “in the early stages of monetizing [its] business” and has yet to achieve an annual profit. Analysts noted that investors would closely examine its roadmap to profitability.

“The real news will come after the first earnings call – where are they headed, what are the results looking like, what changes are they planning to make,” said Reena Aggarwal, director of the Georgetown University Psaros Center for Financial Markets and Policy.