Reddit’s stock experienced a significant increase in value during its initial public offering on the New York Stock Exchange, reaching a value of nearly $9 billion shortly after trading began.

Reddit, which priced its IPO at $34 a share, debuted Thursday afternoon at $47 a share. At the close of trading, it was up 48% at $50.44, backing off a peak of $57.80.

“The fluctuation in the market is to be expected given the current attention towards Reddit,” stated Reena Aggarwal, the director of Georgetown University’s Psaros Center for Financial Markets and Policy.

According to the speaker, when the price of Reddit went up, certain investors who received an allotment may have chosen to sell their shares in order to profit from the increase, causing the price to drop again. She pointed out that this process could potentially continue during the initial stages of the stock’s release.

The success of Reddit’s initial public offering will determine if the unconventional company can overcome its lengthy track record of consistent financial losses, leadership instability, and backlash from users in order to establish a viable and long-lasting business model.

The reason Reddit is popular is because of its extensive community that regularly uses the platform to discuss a variety of topics, from funny memes to deep philosophical questions, and to receive suggestions from others with similar interests.

In December, approximately 76 million individuals participated in one of Reddit’s approximately 100,000 communities, as reported in the mandatory regulatory filings prior to the San Francisco company’s initial public offering. Reddit reserved up to 1.76 million out of 15.3 million shares being offered in the IPO for its users.

According to typical IPO practice, the remaining shares are anticipated to be purchased mainly by mutual funds and other institutional investors who are wagering that Reddit is prepared for success in the world of finance.

The appeal of Reddit’s financial opportunities has drawn attention from notable backers, such as CEO of OpenAI, Sam Altman. He became an early investor and now holds one of the largest stakes in the company. As stated in Reddit’s IPO disclosures, Altman possesses 12.2 million shares of Reddit stock.

According to industry norms, Reddit is considered quite small despite its longevity. For instance, on Thursday, the company’s initial valuation of $9 billion pales in comparison to the market value of $1.2 trillion held by Meta Platforms, the parent company of Facebook which was launched only 18 months prior to Reddit.

The company, Reddit, has consistently expanded its audience but has not been able to turn its reach into profits. In fact, they have accumulated losses totaling $717 million, which is a substantial increase from the $467 million they had accumulated in December 2021 when they initially tried to go public but ultimately canceled the attempt.

In its latest IPO documents, Reddit stated that its losses were due to a recent emphasis on finding innovative methods to increase revenue.

Shortly after its creation, Reddit was purchased by magazine publisher Conde Nast for $10 million. This acquisition allowed Reddit to operate without being a standalone business. While Conde Nast’s parent company Advanced Magazine Publishers spun off Reddit in 2011, the company did not prioritize generating revenue until 2018, as stated in its IPO filing.

Those efforts, mostly centered around selling ads, have helped the social platform increase its annual revenue from $229 million in 2020 to $804 million last year. But the San Francisco-based company also posted combined losses of $436 million from 2020 through 2023.

The filing released by Reddit reveals a plan to increase advertising revenue by leveraging the popularity of its service as a powerful tool for marketing, as a large number of users turn to the platform for product recommendations.

The company’s goal is to increase revenue by granting access to its content through licensing deals, similar to the $60 million agreement recently made with Google to improve its artificial intelligence models. However, this goal was quickly confronted when the U.S. Federal Trade Commission launched an investigation into the agreement.

As this is Reddit’s inaugural day on the public market, Aggarwal emphasized that the company’s upcoming earnings call will be the primary indicator of its success.

“She mentioned that now, being a publicly traded company, they are obligated to disclose a larger amount of information in their upcoming earnings report. I anticipate the market will closely monitor these developments.”

Reddit also experienced tumultuous bouts of instability in leadership that may scare off prospective investors. Company co-founders Steve Huffman and Alexis Ohanian — also the husband of tennis superstar Serena Williams — both left Reddit in 2009 while Conde Nast was still in control, only to return years later.

Huffman, who is 40 years old, has become the CEO. While his initial letter regarding the IPO did not acknowledge it, Huffman briefly addressed the company’s previous struggles in a separate communication found within a December 2021 filing that was later withdrawn.

“We have publicly faced and endured these challenges, leaving us with scars, insights, and policy changes as evidence,” wrote Huffman. “Our past shapes our future, and surely there will be more obstacles ahead.”

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Liedtke wrote from San Francisco.

Source: wral.com