Three years ago, small investors made headlines in the US stock market through the online platform Reddit. Now the media portal itself intends to go public, aiming for a market capitalization of $6.4 billion. The issuance of 22 million shares in a range from $31 to $34 could be one of the biggest IPOs of the year on the US stock exchanges. The company has officially announced its plans to place shares worth up to $748 million. The proceeds from the Initial Public Offering (IPO) are intended to be used mainly to expand the range of offerings on the platform and to contribute to the further expansion of the company.
The prominent example of a Reddit-driven stock rally was the troubled US retail chain GameStop, whose share price was driven up. During the pandemic, private investors had joined forces via forums on the US internet platform, thereby proving that Reddit can indeed have an influence on stock market prices.
To attract small investors for the IPO, Reddit reserves the right to set aside eight percent of the shares on offer for specific users of the platform, forum moderators, and close friends and family members of employees. This group is not subject to any holding periods and could sell their shares on the market on the day of the stock market debut.
Reddit largely functions as an online bulletin board where users can post videos, images, polls, or text in various forums on a wide range of topics. In total, around 73 million people use the platform daily, while the number of weekly users is even higher at 267 million. The company's revenue is largely based on advertising income, which increased by 20 percent last year to $804 million. Despite a loss of $91 million in 2020, this is significantly lower than the loss of $159 million the previous year.
Reddit was founded in 2005 by Alexis Ohanian and Steve Huffman, with Huffman currently leading the company. A year after its founding, Reddit was sold to the US media conglomerate Condé Nast, under which it still operates today as an independent entity by the Condé Nast parent Advance Publications. After the sale, Huffman founded the travel comparison site Hipmunk, which however was discontinued in 2020. Since 2015, he has returned to Reddit as CEO.
During a financing round of 50 million dollars in 2014, prominent investors such as Peter Thiel, Sam Altman, or the rapper Snoop Dogg were among the financiers. At that time, Reddit's valuation was at 500 million dollars. During another financing round of 700 million dollars in 2021, led by the investment firm Fidelity, the valuation increased to around ten billion dollars, which is significantly above the targeted company value at the IPO.
Despite the hype three years ago, most of the meme stocks driven up by Reddit users have since lost a significant amount of value. An example of this is GameStop, whose stock price is currently at just $14.65 compared to over $80 during the peak of the hype. The IPO of Reddit is thus seen not only as a test of investor appetite for new market values, but also as an opportunity to create confidence in the company and its long-term goals.
