Even
as
the
market
hits
record
highs,
social-media
platform
Reddit’s
initial
public
offering
will
test
investor
appetite
for
a
newly
minted
stock.
This
company
has
yet
to
turn
a
profit
and
operates
in
a
highly
competitive
industry.
Ahead
of
its
listing
on
the
New
York
Stock
Exchange,
Reddit
has
laid
out
a
plan
to
expand
its
nascent
advertising
business
and
diversify
its
revenue
sources
by
licensing
its
content
to
third
parties.
The
company’s
cash
flows
are
improving,
and
it’s
generated
buzz
by
reserving
some
shares
at
its
IPO
price
for
users.
However,
buyers
will
own
shares
of
a
company
that
hasn’t
seen
a
full
year
of
profitability.
Reddit
also
faces
stiff
competition
for
digital
ad
dollars
from
established
firms
many
times
its
size,
including
Alphabet (GOOGL)
and
Meta
Platforms (META),
a
giant
in
the
social-media
landscape.
The
site
is
also
no
stranger
to
controversy,
most
recently
over
its
2023
decision
to
charge
third-party
developers
for
access
to
its
API.
As
interest
rates
have
climbed
over
the
past
few
years,
investors
have
soured
on
paying
premiums
for
companies
with
no
clear
path
to
profitability,
according
to
Nick
Smith,
senior
research
analyst
at
Renaissance
Capital.
In
that
sense,
he
says,
“Reddit
will
certainly
be
one
to
watch”.
Reddit’s
IPO
is
expected
to
price
on
Wednesday,
March
20,
with
the
stock
beginning
to
trade
in
the
open
market
the
next
day.
Reddit
IPO
Valuation
Reddit
is
targeting
a
valuation
of
$6.4
billion
–
significantly
less
than
the
$10
billion
price
tag
it
carried
in
2021,
according
to
PitchBook
Data.
That
fundraising
round
was
led
by
Fidelity
Investments,
whose
Blue
Chip
Growth
fund
now
holds
roughly
$17
million
worth
of
Reddit
shares
(a
0.032%
weight
in
its
portfolio).
Reddit
is
expected
to
issue
22
million
shares
and
is
targeting
a
price
range
of
$31-$34
per
share,
according
to
the registration
statement filed
with
the
SEC.
Reddit
made
headlines
after
announcing
that
a
small
portion
of
those
shares
would
be
reserved
for
users.
The
listing
is
also
sure
to
command
attention
because
of
the
role
Reddit’s
WallStreetBets
community
played
in
the
meme
stock
frenzy
of
2021.
This
will
be
the
first
major
social-media
IPO
since
Pinterest (PINS) debuted
in
2019.
Shares
will
trade
on
the
New
York
Stock
Exchange
under
the
ticker
RDDT.
Reddit
Still
Unprofitable
Despite
Growing
Revenue
While
the
company’s
cash
flow
is
improving,
Reddit
has
yet
to
see
an
annual
profit.
The
firm
reported
a
net
loss
of
$90.8
million
in
the
2023
calendar
year
on
revenue
of
$804
million,
compared
with
a
$158.5
million
loss
on
$666.7
million
in
revenue
in
2022.
The
company
acknowledges
that
it
is
in
the
“early
stages”
of
monetising
its
platform.
The
vast
majority
of
Reddit’s
revenue
comes
from
advertising.
Some
98%
of
its
cash
flow
was
from
third-party
advertising
on
the
platform
in
2022
and
2023.
Much
of
that
advertising
comes
from
a
small
core
group
of
customers.
The
company’s
plans
to
diversify
its
revenue
streams
include
licensing
its
vast
pool
of
user
data
to
third
parties
for
various
purposes,
including
research
and
training
artificial
intelligence
models.
Analysts
say
this
could
draw
attention
from
investors,
especially
given
the
connection
to
the
AI
theme,
which
has
propelled
markets
higher
this
year.
Social-Media
Stocks
Face
Competitive
Landscape
This
comes
after
a
series
of
buzzy
listings
–
Arm
Holdings (ARM),
Instacart
(Maplebear) (CART),
Klaviyo (KVYO),
and
Birkenstock (BIRK)
–
failed
to
ignite
the
IPO
market
last
autumn.
With
stocks
fresh
off
a
major
rally
to
start
the
year
and
the
interest-rate
landscape
looking
more
certain,
investors
wonder
whether
Reddit’s
debut
will
open
the
floodgates
for
new
listings
in
2024.
Analysts
say
Snap (SNAP) and
Pinterest
will
be
Reddit’s
closest
competitors
in
public
markets.
Both
stocks
have
struggled
since
the
beginning
of
the
year,
with
Snap
down
nearly
30%
since
January
and
Pinterest
down
7.3%,
while
tech
titans
like
Meta
and
Alphabet
have
soared.
Snap
and
Pinterest
carry
market
capitalisations
of
$19.5
billion
and
$23.7
billion,
respectively.
Michael
Hodel,
Morningstar’s
director
of
communication-services
equity
research,
recently
pointed
out
that
as
a
smaller
company,
Snap
could
struggle
to
pull
in
ad
dollars.
“We
believe
wide-moat
firms
such
as
Meta
and
Alphabet,
which
have
proved
the
value
of
their
ad
inventories
to
advertisers
over
the
years
and
together
dominate
the
market,
will
probably
continue
to
take
more
digital
ad
dollars
over
time,”
he
wrote.
Reddit
may
see
the
same
challenges,
especially
with
advertising
budgets
still
recovering.
“We
face
significant
competition
across
many
areas
of
our
business,”
the
company’s
IPO
filing
reads.
“We
compete
directly
with
all
other
major
advertising
platforms
as
well
as
publishers
including:
Google,
Meta,
Snapchat,
TikTok,
Pinterest,
and
X.”
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