Reddit's Arrival on the Stock Market: A Public Debut for the Social Media Giant

Reddit, a well-known social media company, is now listed on the New York Stock Exchange for the first time after many years. The stock is traded under the ticker symbol "RDDT", opening at $47 and reaching a high of $57.80 on Thursday. This represents a significant increase of up to 70% from its initial price offering of $34. At its highest point, the market cap of Reddit's stock reached around $10.9 billion.

It's a significant milestone for Reddit, a company that has been around for almost 20 years. The preparation for this moment began back in 2021 when they hired their first chief financial officer. This makes Reddit the first social media company to go public in years, and how well it does could set the stage for other companies thinking about going public.

A successful IPO could provide Reddit with the funds needed to invest in areas crucial for its growth. This includes developing new revenue streams and positioning itself as a data provider in the rapidly expanding artificial intelligence language model industry. Additionally, a successful public offering could help establish a stable ownership structure for a company that has experienced changes in ownership and leadership controversies in the past.

Reddit's success is not guaranteed, as the company has never made a profit and acknowledges that profitability may be difficult to achieve in the future. Additionally, loyal users are being offered the chance to purchase IPO shares, a move that could be risky according to Kamran Ansari from investment firm Headline, as these users might cause volatility in the share price by quickly selling the stock.

The IPO market has faced challenges in recent years, with successful IPOs often leading to more successful listings. Despite a record-breaking year in 2021 for companies going public on the US stock market, dealmaking on Wall Street has slowed down due to concerns about a potential recession, higher interest rates, and geopolitical tensions.

IPO activity is on the rise, with 23 IPOs priced so far this year, a 15% increase from last year. However, companies that have recently gone public have not performed as well as the S&P 500, underperforming by about two percentage points according to data from the Renaissance IPO Index.

Reddit priced its shares at $34 each, valuing the company at around $6 billion. This is lower than the $10 billion valuation the company aimed for on the private market in 2021. This serves as a reminder that in the current environment of high interest rates, money comes at a higher cost.

David Trainer, CEO of New Constructs, expressed his thoughts on Reddit's IPO, calling it the return of the junk IPO. He believes that the company might struggle to monetize its platform without upsetting its users, as Reddit's essence lies in user-generated content.

Despite the challenges, this could be the opportune moment for Reddit to make its debut in the stock market. With the social media industry on edge due to a potential ban on TikTok in the United States, Reddit going public could bring a significant impact.

Some experts on Wall Street believe that Reddit still has room to grow, especially after experiencing a 40% increase in its user base from 2021 to 2023.

Scott Kessler, who leads the global technology sector at research firm Third Bridge, mentioned that there is significant growth potential for Reddit in countries where English is widely spoken, such as India. He also pointed out that Reddit is currently available in fewer than 10 languages, indicating an opportunity for the company to expand its reach by making the platform accessible to more users worldwide.

Kessler pointed out that the main challenge lies not only in increasing the number of users, but also in finding ways to make money from them.

One of Reddit's strategies to improve monetization is by licensing their data for training artificial intelligence models. Recently, the company revealed a $60 million per year AI licensing agreement with Google.

Reddit, known as the "front page of the internet," has the potential to be a valuable data source. However, some users are concerned about their content being used for AI training. Regulators, including the US Federal Trade Commission, are also looking into Reddit's plans to license data to AI companies. Reddit maintains that it has not violated US consumer protection laws.

CNN’s Nicole Goodkind contributed to this report.

Editor's P/S:

Reddit's IPO marks a significant milestone for the social media landscape. As the first company in this sector to go public in recent years, its success or failure could have implications for other similar companies considering an IPO. While Reddit has the potential to invest in growth areas and establish a stable ownership structure, its profitability concerns and the volatility caused by loyal users selling IPO shares pose challenges.

Despite the risks, Reddit's strong user base and potential for expansion in international markets suggest that this could be an opportune moment for its debut in the stock market. The company's strategy to monetize through AI data licensing could also prove lucrative, although concerns about user data privacy and regulatory scrutiny remain. Overall, Reddit's IPO is a significant event that highlights the evolution of the social media industry and the challenges and opportunities it faces in today's market. in the rapidly evolving AI industry.