Social media giant Reddit is gearing up for its highly anticipated initial public offering (IPO), expected to take place in March. This marks a significant development in the social media landscape, as Reddit aims to go public, becoming the sector’s first major debut since Pinterest in 2019. The IPO plans were reported by Reuters.
With a valuation of approximately $10 billion following a 2021 funding round, Reddit is entering the public market amidst intense competition for advertising revenue from platforms such as TikTok and Facebook. The IPO will serve as a litmus test for Reddit’s user base, known for its active and engaged community, and their willingness to support the company’s stock market entry, especially given the platform’s history of influencing “meme” stock rallies.
Founded in 2005 and headquartered in San Francisco, Reddit has planned its IPO timeline, intending to file publicly in late February, kick off its roadshow in early March, and complete the IPO by the end of the same month. The company, seeking to sell around 10% of its shares, will finalize the IPO valuation closer to the listing date, considering market conditions.
Despite its popularity and widespread usage for niche discussion groups, Reddit has yet to turn a profit. The platform generates revenue primarily through advertising and offers premium access for a monthly fee. Reddit CEO Steve Huffman acknowledged the company’s losses, attributing them to investments in the platform and lower user engagement with advertising compared to other social media platforms.
The decision to move forward with the IPO comes after Reddit’s expectation to generate over $800 million in advertising revenue in 2023, reflecting a 20% increase from the previous year. The company has strategically held off on its IPO plans until it approached profitability, navigating market volatility that disrupted IPOs in recent years.
While Reddit aims to tap into its vast user base for financial gains, it introduced charges for accessing its application programming interface (API), causing discontent among users who rely on third-party apps. This move indicates Reddit’s effort to diversify its revenue streams beyond traditional advertising models.
Despite Reddit’s delayed path to profitability, the broader social media sector has experienced a rebound, driven by a rally in technology stocks. Meta Platforms, the company operating Facebook, witnessed a threefold surge in shares over the past 12 months, while Snap’s shares rose by 60% during the same period.
While Reddit’s IPO plans are on track, sources caution that the company may face hurdles, and the timeline could experience delays, as seen with other companies in the past. The success of Reddit’s IPO will not only depend on market conditions but also on the platform’s ability to demonstrate a sustainable path to profitability and compete effectively in the evolving landscape of social media and digital advertising.
