Reddit, the renowned social media platform, made a resounding entry into the stock market, with its shares soaring 48 percent on the first day of trading on the New York Stock Exchange. This remarkable debut underscores investors’ renewed interest in initial public offerings (IPOs) of innovative yet loss-making companies.
Reddit has not achieved annual profits since its launch in 2005. However, it has attracted investors by positioning itself as a hub for artificial intelligence (AI) training programs. Moreover, a recent data licensing deal with Google, valued at approximately $60 million annually, further bolstered investor confidence.
Strong market valuation
Reddit’s shares opened at $47 on the New York Stock Exchange, exceeding the IPO price of $34, and closing at $50.44. The IPO valued Reddit at $6.4 billion, with the company and its selling shareholders raising $748 million. Despite a previous private fundraising round valuing Reddit at $10 billion in 2021, the market reception indicated that the company may not have needed to decrease its valuation expectations to support the IPO.
Reddit initially wanted to enter the public market in 2023. However, the Russia-Ukraine war and interest rate hikes discouraged the IPO market.
In a unique move, Reddit reserved 8 percent of shares for eligible users, moderators and other stakeholders, offering some shares to retail investors through online brokerage platforms. While this strategy aims to reward users and foster community engagement, analysts warn of potential risks, including increased price volatility and early sell-offs by retail traders.
Read: Parkin shares jump over 35 percent on first day of trading on Dubai stock market
Future outlook
Since its inception, Reddit has become a cultural phenomenon, boasting 100,000 online forums known as subreddits. Its iconic logo and diverse range of discussions have solidified its place in social media culture. While Reddit’s IPO debut has captured headlines, attention now turns to its post-listing performance and financial results. Analysts anticipate the company’s first earnings call to provide insights into its trajectory, operational strategies, and potential changes. Retail sentiment remains optimistic yet cautious.
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