Reddit surges 48% on its first day of launch as an AI proposal is well received

As investors welcomed Reddit Inc.’s aim of capitalising on the development of artificial intelligence, the social media company’s shares surged 48% over the price of its initial public offering.
A day after raising $748 million in an offering priced at the top of an advertised range, the San Francisco-based firm and several of its stockholders saw their shares finish at $50.44 a share on Thursday in New York.

After two of the worst years in a decade, the market for first-time share sales is still expanding, with Reddit’s IPO ranking fourth on a US exchange in 2024. The IT businesses whose intentions to offer have been put on hold will finally have their chance to launch after the successful listing.
Reddit’s value thesis for investors revolved around the AI revolution, as firms seek to capitalise on record-breaking stock rises in Nvidia Corp. and other chipmaker stocks.
Jennifer Wong, the chief operating officer of Reddit, said to Bloomberg TV that “large language models need data.” The company’s 19 years of “human experience organised by topic, with moderation and relevance” were highlighted by the speaker as being crucial to developing the chat feature and maintaining the accuracy of the content. We believe there is potential there.
A Two-Year Delay
Beginning with its first confidential filing in 2021, when IPOs on US markets set an all-time record of $339 billion, Reddit’s more than two-year journey to listing follows the ups and downs of the market, as per statistics collated by Bloomberg. Since then, US IPOs have decreased dramatically, with just $26 billion recorded last year, according to the statistics.
On its first day, the company’s shares increased by as much as 70%. Its market worth, based on the outstanding shares disclosed in its filings with the US Securities and Exchange Commission, is $8 billion, based on the closing price of $50.44 a share. Reddit’s fully diluted value, including restricted share units and stock options, is closer to $9.5 billion, just missing the $10 billion mark it had reached in a 2021 financing round.
Prior to the announcement of the price, Mandeep Singh, a senior industry analyst at Bloomberg Technology, contended that the company’s valuation would reach $10 billion.
According to Singh on Thursday on Bloomberg Radio, Reddit’s $34 IPO price translates to an enterprise value-to-sales ratio between the eight times multiple of Meta Platforms Inc. and the four times multiple of smaller digital ad rivals like Snap Inc. and Pinterest Inc.
Reddit, whose growth has increased over the last six months, “makes a strong case that it should be at a premium multiple,” Singh said. “You pay for growth.”
Instacart, a US technology company, raised $660 million via its IPO, and Klaviyo Inc., a company that raised $659 million, were the two largest listings in September, after Reddit’s IPO. Although the British chip manufacturer Arm Holdings Plc’s $5.23 billion offering, the largest of 2023, and other IPOs did not spark a stampede to list, the market has subsequently warmed.
These IPOs on US marketplaces have raised almost $8.8 billion this year, according to the statistics. This is a roughly 152% increase from the same time last year.
The impressive performances by Astera and Reddit provide other IPO contenders, such as Microsoft Corp.-backed data security startup Rubrik Inc. and health-care payments business Waystar Technologies Inc., a gauge of the state of the market.
According to Reddit’s papers, Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., and Bank of America Corp. led the IPO. Under the ticker code RDDT, Reddit’s shares are traded on the New York Stock Exchange.
AI Permissions
Like Astera, Reddit’s AI-related company is largely responsible for the excitement among investors.
Reddit said that it is only now beginning to provide other companies with licence access to its data for purposes such as building AI models. According to the corporation, it signed data licencing agreements in January with periods ranging from two to three years and a total contract value of $203 million. Based on the reports, it anticipates earning at least $66.4 million from such agreements this year.
Reddit and Alphabet Inc.’s Google have also announced a partnership that would let Google’s AI products use Reddit data to advance their technological capabilities. To become better, large language models often need enormous amounts of material created by people.
According to Wong, as more and more material is produced by AI, original ideas and concepts will become more and more valuable, as reported by Bloomberg TV.
“If you consider it, who will review a new car when it comes out?” she questioned. “A family of six in real life can tell you what it’s like to drive that vehicle. That will always be worth something.
The $713 million Astera Labs Inc. offering precedes the IPO by one day. After pricing its shares over its marketing range on Tuesday, Astera, a semiconductor connectivity firm with an AI emphasis, has seen a 78% surge in value.
Reduced Losses
According to its records, Reddit, which was founded in 2005, had an average of 73.1 million daily active unique visitors in the fourth quarter. In 2023, the business had a net loss of $91 million on $804 million in sales, down from a net loss of around $159 million on $667 million in revenue the previous year.
Some board members, friends and relatives of some workers and directors, and Reddit users and moderators who opened accounts prior to January 1st were among the approximately 8% of the 22 million shares that were sold during the first public offering (IPO). According to Reddit’s papers, those shares aren’t locked up, so their owners may sell them on the first day of trade.
Advance Magazine Publishers Inc., a division of the Newhouse family publishing business that also controls Conde Nast, is Reddit’s major stakeholder. Conde Nast acquired Reddit in 2006 and spun it off in 2011.
In a signed letter included with the papers, Reddit co-founder and CEO Steve Huffman said that the firm had several potentials to develop the platform and the business.
“Our first business is advertising, and we’ve found that Reddit is a great place for advertisers of all sizes to find high-intent customers that they can’t reach elsewhere,” Huffman added. “Reddit advertising is changing quickly, and we’re just starting out in this business.”
As per the documents, Huffman will own 3.3% of the voting power after the offering due to his shares. According to the papers, this includes Class B shares, which will have ten votes apiece as opposed to the one vote each for the Class A shares issued in the IPO. Additionally, Huffman and Advance have a voting proxy agreement.
According to the documents, Wong is among the other significant owners, along with FMR LLC, organisations connected to OpenAI CEO Sam Altman, Tencent Holdings Ltd., Vy Capital, Quiet Capital, and Tacit Capital.
Together, Huffman and those investors control almost 75% of the voting rights held by shareholders.
Venture capitalist Alexis Ohanian, Huffman’s fellow co-founder, isn’t included in the papers anywhere else or among the investors with interests of 5% or more.