Reddit prices IPO at $34 per share, a positive sign for tech

Reddit on Wednesday has priced its shares at $34 for its IPO, at the high end of expectations, as a sign of investor demand for growing technology companies.

The San Francisco-based social media company had estimated its shares would cost between $31 and $34. The $34 price raised Reddit’s value to $6.4 billion, lower than the $10 billion valuation it fetched during a private fundraising round in 2021. The company raised $748 million in the offering.

The shares will begin trading Thursday on the New York Stock Exchange under the ticker symbol RDDT.

The pricing was a positive signal for startups and venture capitalists, who were closely watching Reddit’s offering as a test for private tech companies looking to brave the public markets. Activity has been sluggish, with just over 100 companies going public in the United States last year, about a quarter of the number that went public in 2021, according to data compiled by the exchange-traded Renaissance Capital manages funds that focus on IPOs.

“There was some concern about technology demand heading into 2024,” said Matt Kennedy, senior strategist at Renaissance Capital. But Reddit’s pricing, in addition to a successful first day of trading on Wednesday for artificial intelligence company Astera Labs, was a “good sign for the rest of the pipeline,” he added.

Shares of one of last year’s hottest tech companies — Instacart, the grocery delivery company — are up about 58 percent this year. Shares of Arm, a chip designer that also went public last year, have risen about 90 percent in the same period.

The offering is a boon for Reddit’s largest shareholders. They include a co-founder, Steve Huffman, who owns a 3.3 percent stake; Advance Magazine Publishers, affiliated with Condé Nast’s parent company; and a part of Tencent, the Chinese internet giant, called Tencent Cloud Europe. Alexis Ohanian, the other co-founder, was not listed as a principal shareholder in Reddit’s filings.

Reddit’s road to the public markets has been a long one. Founded in 2005, the company was an early form of social network, growing up when Facebook was still nascent and MySpace was at its peak.

Reddit relied on old-style message boards, which were largely text-based, divided into topics and browsed by pseudonymous commenters. The company was sold to Condé Nast for $10 million in 2006 and was subsequently spun off after years of stagnation under former management.

For years, Reddit’s revenue was thin. Various forms of monetization were experimented with, including a community-based donation economy that some enjoyed, but which did not produce robust results. After a series of community uprisings and a revolving door of CEOs, by 2015 Reddit had more than 100 million users but only $12 million in annual revenue. That year, Mr. Huffman, who had left in 2006, returned to lead the company.

In the years since, Reddit has built up its advertising business, which now accounts for the vast majority of the company’s revenue. Revenue last year was $804 million, up about 21 percent from a year earlier. The net loss was $90 million, compared to a loss of $158 million the year before.

Reddit has also built a data licensing business, selling information about its users’ discussions and trends on the site to hedge funds and Wall Street firms, which use the information to gain an edge in trading.

More recently, Reddit has tapped into its vast trove of conversational data to market itself as a repository for training large language models, which help artificially intelligent computers learn speech skills that are more human-like. The company expects to earn more than $200 million over the next three years from these types of deals it has made with Google and others.

Perhaps Reddit’s biggest obstacle to a smooth IPO is its users. The thousands of forums, or “subreddits,” that make up the site are largely overseen by a volunteer group of moderators. Some have resisted the idea of ​​Reddit being a publicly traded company, fearing that market forces and quarterly shareholder demands would erode some of the features that made the site so attractive to them.

Mr. Huffman has said that the fear of going public is part of a normal “maturation process.”

“We have the same love for Reddit — and the same fear of losing Reddit — as our community,” he told The New York Times last year.

Among the investment banks leading Reddit’s offering were Morgan Stanley and Goldman Sachs.