Reddit shares surge 48% on first day of IPO
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The popular online forum Reddit held a successful IPO – its shares rose 48% on the first day of trading, and its capitalization reached $9.5 billion. Investors are closely looking at Reddit’s placement in a still weak IPO market. However, according to experts, more substantiated conclusions about the success of the placement can only be made in a few weeks.
Yesterday, March 21, on the first day of trading on the stock exchange, shares of the Reddit company, which owns the popular forum of the same name, grew up by 48%. The shares rose even though the company set the price at the upper limit of the previously announced price range of $31–34. During the initial offering there was attracted $748 million: Reddit itself raised $519 million, another $229 million came from the company’s shareholders who sold their shares.
On the first day of trading on the New York Stock Exchange, Reddit’s share price at one point reached $57.8 (up 70% from the IPO price), and by the close of trading it exceeded $50 (up 48%).
This brings the company’s capitalization to $9.5 billion, almost the level of its valuation during its last funding round in 2021, when IPO market activity was record-breaking and investors were generally willing to invest in a wide variety of startups.
Over the past two years, activity in the IPO market has fallen, with only a few large IPO. According to American media, many technology companies, including the fintech company Stripe and software developer Databricks, want to carry out an offering, but are postponing it until at least 2025. Reddit itself applied for an IPO at the end of 2021, but then abandoned the placement due to a sharp deterioration in market conditions.
Reddit was created in 2005, its platform is a hybrid of a social network and a forum. She quickly became a cult phenomenon on the Internet. Moreover, the platform remains niche in comparison with its competitors. Reddit is owned by media corporation Advance Publications, and major shareholders include OpenAI CEO Sam Altman, Tencent Corporation and Fidelity investment fund.
The rise in Reddit shares, which ended 2023 with a loss of $90.8 million, indicates renewed investor interest in promising but still unprofitable companies. According to Vanderbilt University finance professor Josh White, the Reddit IPO shows that investors are willing to ignore the company’s unprofitability as long as its growth prospects remain intact. There has been no such trend for at least three years.
However, there are also experts who are skeptical about Reddit’s posting.
“The Reddit IPO is a sign of the return of junk IPOs. We believe that a company will never be able to monetize its platform without angering its users, and the basis of Reddit is user-generated content,” said David Trainer, founder of investment research firm New Constructs.
According to Julian Klymochko, founder of alternative investment fund Accelerate Financial Technologies, investors will be closely watching the market in the next few weeks. “If Reddit trades poorly, it will cast a shadow over the entire IPO market. Then many companies will pause their IPO initiatives,” he believes.
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