"American version of Tieba" RedditIPO priced at $34 per share will debut on the NYSE tonight

According to Zhitong Finance APP, the social media platform Reddit, known as the "American version of Tieba," and its selling shareholders raised $748 million, with an initial public offering (IPO) price reaching the upper limit of the market pricing range. This is the second large-scale technology stock listing in the U.S. in recent days.

In a statement, the social media platform and its executives and other employees sold 22 million shares of stock at a price of $34 per share. The offering price range for these shares in the IPO was between $31 and $34.

Based on the outstanding shares listed in the documents submitted to the U.S. Securities and Exchange Commission, Reddit's market value is $5.4 billion at the IPO price. Including stock options and restricted stock units, Reddit's fully diluted valuation is close to $6.4 billion. This is lower than the $10 billion financing plan Reddit had when it first announced its IPO in 2021.

Reddit is a notable member of the list of new and upcoming companies going public in 2024. The largest among them was the $1.57 billion IPO of Yamafen Sports (AS.US) in January this year.

The day before, Astera Labs (ALAB.US) issued $713 million in stock. Astera is a semiconductor connectivity company focused on artificial intelligence, with its stock price higher than the market pricing range, surging 72% on its first day of trading on Wednesday.

According to Reddit's documents, this IPO was led by Morgan Stanley, Goldman Sachs, J.P. Morgan, and Bank of America. Reddit's stock will begin trading on the New York Stock Exchange on Thursday under the symbol RDDT.

Two-Year Journey

According to compiled data, Reddit's over two-year journey to going public, based in San Francisco, reflects the market's ups and downs. Starting from secretly submitting files in 2021, the IPO on the U.S. exchange set a historical record of $339 billion. Since then, the size of IPOs in the U.S. has dropped significantly, reaching only $26 billion last year.

Reddit's IPO this time exceeded the large listings of U.S. tech companies Instacart (CART.US) and Klaviyo (KVYO.US) in September last year, with the former raising $660 million and the latter issuing $659 million. Despite these IPOs, along with the $5.23 billion issuance of British chip design company Arm (ARM.US) in 2023 (the largest IPO that year), failing to spark an IPO frenzy, the market has been warming up since then.

Data shows that this year, nearly $8.7 billion has been raised through IPOs on U.S. exchanges, an increase of about 150% compared to the same period.

Narrowing Losses

According to its submitted documents, Reddit, founded in 2005, had an average daily active independent visitor count of 73.1 million in the fourth quarter. The company reported a net loss of $91 million in 2023, with revenue of $804 million. In comparison, the net loss in the same period last year was approximately $159 million, with revenue of $667 millionApproximately 8% of the IPO shares will be reserved for Reddit users and moderators who create accounts before January 1, as well as some board members, certain employees, and friends and family of directors. According to Reddit's documents, these shares are not subject to lock-up restrictions, meaning owners can sell the shares on the first day of trading.

The largest shareholder of Reddit is Advance Magazine Publishers Inc., which is part of the Newhouse publishing empire family that owns Conde Nast, which acquired Reddit in 2006 and spun it off in 2011.

Reddit stated that its millions of loyal users and moderators have brought benefits to the company but also risks. Historically, the relationship between Reddit users and the platform has been contradictory, from racism on the platform to executive personnel decisions, they have all sparked resistance.

Short Selling Plan

Reddit's WallStreetBets forum has around 15 million users. In 2021, the WallStreetBets forum triggered a meme stock frenzy, driving stocks like GameStop (GME.US) and AMC Theatres (AMC.US) soaring and causing shockwaves in the financial industry.

Now, thousands of WallStreetBets forum users are voting to support a post about shorting the stock when Reddit shares begin trading. Their reasons vary, from the company's lack of profitability to concerns about competition.

Reddit co-founder and CEO Steve Huffman stated in a signed letter in the documents that the company has many opportunities to develop the platform and business.

Huffman said, "Advertising is our first business, and advertisers of all sizes find that Reddit is a great place to reach high-intent customers they can't reach elsewhere. Advertising on Reddit is growing rapidly, and we are still in the early stages of developing this business."

AI Authorization

Furthermore, Reddit stated that it is in the early stages of allowing third-party access to platform data for training artificial intelligence models. The company announced that it signed data licensing agreements in January, with a total contract value of $203 million over periods ranging from 2 to 3 years. The documents show that the company expects to generate at least $66.4 million in revenue from these agreements this year.

Reddit also announced an agreement with Google (GOOGL.US) to allow Google's AI products to use Reddit data to enhance their technology. Large language models typically require a significant amount of human-generated content to improve.

Huffman's shares will give him 3.3% of the voting rights post-listing. The shares include Class B shares with 10 votes per share, while the A shares sold in the IPO have 1 vote per shareHuffman also signed a voting proxy agreement with Advance.

Documents show that other major shareholders include COO Jennifer Wong, FMR LLC, as well as entities associated with OpenAI CEO Altman, Tencent (00700), Vy Capital, Quiet Capital, and Tacit Capital.

Overall, Huffman and these investors will collectively hold about three-quarters of the voting rights of shareholders after the IPO.

Huffman's other co-founder and venture capitalist Alexis Ohanian is not listed as a shareholder of 5% or more, and his name is not mentioned in other documents