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Reddit to IPO at the top end of price range

Article By: ,  Senior Market Analyst
March 21, 2024 8:45 AM
  • IPO price at $34 per share, at the top end of range
  • Company valued at $6.4 billion
  • A litmus test for investor appetite for new listings

Reddit will start trading today on the NYSE and be listed under the ticker symbol or “RDDT.”

The social media platform is offering 22 million shares in the IPO, priced at $34 a share, which is the top end of the pricing guidance. This pricing puts Reddit’s valuation at $6.4 billion, well below the $10 billion valuation at the most recent funding round in 2021. The company initially filed to float in 2021, at a time when IPOs on US exchanges hit a record high of $339 billion. This is in stark contrast to IPOs in the US last year, which totaled just $26 billion.

Test of investor appetite

Pricing at the top end of the guidance range is a vote of confidence ahead of its debut on the NYSE, which will be a major litmus test of investor appetite for new listings. So far, the recovery in the IPO market has been uneven. Reddit is set to be the highest-profile IPO of 2024, coming after big names Instacart, Klaviyo, and ARM IPO’d last year with mixed results.

ARM’s share price has more than doubled, while Instacart has underperformed the broader market. Birkenstock's performance is roughly in line with the S&P 500’s.

Despite its cult-like status among followers, Reddit has lagged behind peers such as Meta and Twitter. The firm has so far never posted a profit and said in the filing that it “was still in the early stages of monetizing its business".

Advertising is its main revenue stream, with an average of 73.1 million daily active users in the three months to December 31. However, there have been issues regarding its lax approach to content moderation. Although Reddit said it has now tightened policies to help build up advertising revenues. This doesn’t appear to have deterred investors, as the IPO was ten times oversubscribed.

Meme stock in the making?

However, this IPO could be different from its peers—its success or failure could be driven to some degree by the hype or buzz created on the platform, and of course, it runs the risk of becoming a meme stock itself.

Record highs on Wall Street

Still, the IPO is taking place when risk appetite is improving, and the US stock markets are trading at a record high following the Federal Reserve’s interest rate decision yesterday. As expected, the Fed left rates on hold at 5.25%- 5.5% but also maintained guidance for three rate cuts this year, surprising the market. A lower interest rate environment is considered more favorable for growth stocks like Reddit.

 

 

 

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