Reddit: The High Level Details Of The IPO
The popular online platform Reddit has revealed its intention to go public on the New York Stock Exchange (NYSE) under the symbol “RDDT.” This move marks the first initial public offering (IPO) of a social network since Pinterest’s debut in 2019.
Despite the announcement, specific details regarding the number or price of shares, as well as the IPO date, have not been disclosed by Reddit. Analysts are projecting the offering’s valuation to be somewhere in the $5 billion range.
Founded in 2005, Reddit has grown into a massive hub with over 100,000 online communities and attracts an average of 76 million visitors daily.
“They come to Reddit to participate in a vibrant community, a constantly evolving place where anyone, anywhere, can connect with like-minded people and dive into any topic,” said CEO Steve Huffman.
One of Reddit’s notable features is its “Ask Me Anything” sessions, where influential figures engage with users, contributing to the platform’s allure.
Originally acquired by Conde Nast in 2006, the platform was later spun off into an independent subsidiary.
History of net losses
While Reddit’s business model relies heavily on advertising, the platform has yet to achieve profitability. According to filings, Reddit reported a net loss of $90.8 million in 2023, despite generating $804 million in revenue.
The company acknowledged its history of net losses and expressed uncertainty about achieving profitability in the foreseeable future, raising concerns among investors and stakeholders.
Since its inception, Reddit has grappled with net losses, with figures standing at $158.6 million and $90.8 million for the years ended December 31, 2022, and 2023, respectively. As of December 31, 2023, Reddit’s accumulated deficit amounted to a staggering $716.6 million.
Reddit anticipates a surge in operating expenses in the coming periods, with the potential to harm its business, financial condition, and prospects. Despite recent cost reduction measures, the company foresees rising costs and expenses as it embarks on significant investments to bolster various facets of its business.
These investments include expanding its user base, developing new products, marketing existing products, promoting its brand, expanding technical infrastructure, and hiring additional employees. However, Reddit recognizes that some investments may yield limited revenue and reduce operating margin, posing a risk to revenue growth.
As a newly public company, Reddit is bracing for significant additional expenses in legal, accounting, and other areas, further straining its financial outlook.
Reddit is also advising potential investors of the evolving competitive space it is in. Competition for the platform comes from a myriad of sources, ranging from tech giants like Google and Meta (including Facebook, Instagram, Threads, and WhatsApp) to content platforms like YouTube, Wikipedia, and social media platforms such as Snap, Pinterest, TikTok, Roblox, Discord, and Twitch. Additionally, Reddit faces competition from online marketplaces like Facebook Marketplace, Nextdoor, Craigslist, and ecommerce platforms like Poshmark and Etsy.
“Many of these companies have greater financial resources and substantially larger user bases than Reddit,” the filing read.
A notable aspect of Reddit’s competition comes from large language models (LLMs) such as ChatGPT, Gemini, and Anthropic. These models, which leverage artificial intelligence, pose a threat to Reddit as they offer users alternative avenues for accessing information and engaging with content.
However, Reddit said it is actively working on mechanisms for users to earn money on the platform, reflecting its commitment to enhancing user engagement and community empowerment. Notable actions by Reddit communities, such as advocating for net neutrality and supporting retail investors during the GameStop frenzy in 2021, underscore the platform’s influence on societal issues.
Mods to buy shares
Reddit’s filing includes a suggestion for unpaid moderators to purchase stock, which has sparked humor and commentary online. The company states its intention to go public to strengthen its position and advance its mission, aiming to provide benefits to its community as well.
“Our users have a deep sense of ownership over the communities they create on Reddit,” the firm said in its filing. “We want this sense of ownership to be reflected in real ownership-for our users to be our owners… With this in mind, we are excited to invite the users and moderators who have contributed to Reddit to buy shares in our IPO, alongside our investors.”
Altman’s equity
OpenAI CEO Sam Altman emerges as a major player in Reddit’s IPO, holding 9.2% of the voting power in the company. Altman’s involvement with Reddit stretches back to 2014, when he spearheaded a pivotal $50 million Series B funding round.
With a track record of successful investments in startups like Asana and Instacart, Altman’s total contributions to Reddit amount to a substantial $60 million. Notably, an additional $10 million was injected into Reddit during the latter half of 2021.
As Reddit prepares for its IPO, it’s revealed that Altman’s holdings in the company’s Class A and Class B stocks surpass those of Huffman.
Beyond his financial stake, Altman is strategically focused on expanding the adoption of OpenAI’s services, including the widely used ChatGPT, amidst stiff competition from other large language models.
Reddit’s plan to extend shares to its users and moderators as part of the IPO is seen as a move echoing Altman’s commitment to community involvement.
Reddit and bitcoin
Reddit has also revealed its foray into the digital asset realm by investing excess cash reserves into Bitcoin. The decision, outlined in Reddit’s recent filing, underscores the company’s strategic pivot towards blockchain technology while acknowledging the inherent risks and challenges associated with such investments.
The company’s investment portfolio includes Bitcoin and Ether, with acquisitions of Ether and Matic serving as a form of payment for specific virtual goods sales.
As of December 31, 2023, Reddit’s digital asset holdings were limited to Bitcoin and Ether for treasury purposes, with any future investments in cryptocurrencies subject to approval from the board of directors.
Licensing deal with Google
Reddit has also recently entered into a licensing agreement with Google, granting latter the access to its user-generated content platform in a deal valued at approximately $60 million annually, as confirmed by Reuters.
Previously, AI companies faced legal uncertainties by training their data on the open web without formal permission, leading to a shift towards obtaining data through formal agreements.
Google’s offer of $60 million for access to Reddit’s content surpasses OpenAI’s previous offer of $5 million annually to media organizations.
Under the terms of the agreement, Reddit will sell user-generated content to Google for AI training purposes, enabling the tech giant to leverage the platform’s vast array of content.
Information for this briefing was found via AFP, CNBC, Softonic, and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
