Reddit opens up 38% as shares start trading

Shares of Reddit opened up about 38 percent on their first day of trading on Thursday, in a sign of investor eagerness that paved the way for more tech companies to hit the stock market this year.

The social media company’s shares traded at $47 on the New York Stock Exchange after being priced at $34 in its initial public offering on Wednesday, and continued to rise. The pop estimated Reddit’s market cap at about $9.2 billion, down from the $10 billion it was valued at on the private markets three years ago.

The listing is a milestone on a long road for Reddit, which was founded in San Francisco in 2005. The site is best known for its message boards, where users can gather on forums known as subreddits to research and discuss everything from parenting to power washing to Labrador retrievers. Over the years, the company has struggled with many of the issues faced by the largest social media companies, such as how to moderate your opinions and make money.

“The process of becoming a publicly traded company has made us so much better,” Reddit CEO Steve Huffman said in an interview Thursday morning. “We deliver better products, faster.”

Reddit’s performance indicated that public markets need more technology offerings after stock market collapses due to rising interest rates and economic uncertainty. Just over 100 companies went public in the United States last year, about a quarter of the number of companies that went public in 2021, according to data compiled by Renaissance Capital, which manages IPO funds.

Reddit’s IPO wasn’t guaranteed to be a success. The company is growing but unprofitable and has faced questions about the strength of its advertising and data licensing businesses.

On Wednesday, artificial intelligence company Astera Labs soared 72 percent on its first day of trading on the stock market, which combined with Reddit’s debut could encourage other private tech companies to go public. These include Rubrik, a cloud data management company; SeatGeek, a ticket provider; and ServiceTitan, a home services software company.

A key question for tech companies considering an offering is whether they should moderate their valuation expectations. Many private tech companies that raised money during a euphoric investment climate have since raised money at lower valuations.

Against this backdrop, some larger, well-funded tech companies, such as payment processor Stripe, appear to be in no rush to go public. Stripe, based in San Francisco, said last month that it had purchased shares from its employees, allowing them to partially cash out their stake in the company without an initial public offering

Reddit’s first day of trading was also a test of whether it would become a “meme stock,” which is when a company gains a flock of followers on social media and its shares can be promoted or pilloried for the financial gain of its followers. One subreddit, WallStreetBets, has developed a powerful role in the financial markets as a promoter of meme stocks, serving as a place where traders gather, exchange tips and talk.

In its public offering, Reddit offered up to 8 percent of its shares to Redditors, the people who use the site regularly, in an unusual move to reward some of its most loyal users.

Typically, large financial institutions can buy into an IPO the night before the company goes public. These institutions are the ones that stand to benefit the most if they sell to the high interest of retail investors the next day.

“It’s a way to create loyalty,” said Jay Ritter, a finance professor at the University of Florida. “The company says, ‘Look, we want the people who have been successful to get some benefits.'”

That also entails risks. Shares of Robinhood, a stock trading and investing app that decided to sell as much as a third of its offering to retail traders through its own app during its own IPO, closed down 8 percent on its first day of trading when it went public in 2021 went.

One of the biggest winners from Reddit’s IPO was the Newhouse family, the media dynasty that controls Condé Nast through its holding company Advance Publications. The Newhouses could reap a windfall of about $1.4 billion from the roughly 30 percent stake they own in Reddit. Other major shareholders including Tencent, the Chinese internet company, and Sam Altman, the CEO of OpenAI.

“We did it, mom,” Alexis Ohanian, one of the site’s co-founders, said on social media after on Thursday. Mr. Ohanian, who previously served as chairman of Reddit’s board of directors, is no longer a principal shareholder or has any operational role at the company. He and Mr. Huffman parted ways after disagreements over how discriminatory language should be moderated on the website.

Thursday from the New York trading floor, Mr. Huffman pointed to the improved speed at which the company has added new features and improved tools over the past year for moderators, the thousands of volunteer users who oversee the site’s subreddits.

These changes — and the specter of more to come — are still a source of tension for many of Reddit’s more than 70 million daily users. Many have worried about how the pressure of quarterly reports and the demands of Wall Street could affect the site’s operations, saying profits on products could be detrimental to what Reddit, Reddit, has created.

“It’s a natural feeling, and one we share,” Mr. Huffman said in the interview Thursday. “But we love Reddit – that’s the emotion we all have in common. And it’s important to us to treat Reddit with respect as we move forward.”

He added: “But there’s only so much I can tell – now we have to show it.”