Reddit plans share sales to platform’s users as it moves ahead with IPO

Reddit revealed more than $800mn in sales and narrowing losses as it unveiled a prospectus ahead of its long-delayed initial public offering, outlining plans to allot a portion of its shares to retail investors and users of its social network.

The first major tech group flotation of 2024 will test the strength of the US IPO market after two lacklustre years. Under the ticker RDDT, the company is poised to list on the New York Stock Exchange as soon as early March.

The number of shares sold to retail and Reddit users would be “significant”, the company said.

“We hope going public will provide meaningful benefits to our community as well,” Steve Huffman, co-founder and chief executive, said in the prospectus. “Our users have a deep sense of ownership over the communities they create on Reddit. This sense of ownership often extends to all of Reddit.” 

Reddit was valued at $10bn in its most recent private fundraising in 2021, but some investors have since marked down their valuations by about 50 per cent.

San Francisco-based Reddit reported sales of $804mn in 2023, according to the prospectus, up 21 per cent year on year. The company, once known as a bastion for free speech, makes most of its revenue from advertising, forcing it in recent years to more closely police the shadier underbelly of the platform. Net losses shrunk from $159mn to $91mn in 2023, but it has never reported a profit.

The platform said it had 267.5mn weekly active users across more than 100,000 subreddits, or individual topic and interest-based forums, the most famous of which was the WallStreetBets trading forum. 

Reddit said it would use a “directed share programme” to allocate shares to longtime users — or “redditors” — and will also sell stock to the broader retail investment community through apps such as Robinhood and SoFi.

The company cautioned that involving an unusually large number of retail traders in the listing could lead to an increase in stock price volatility, and risked replicating the sort of “meme stock” price action that led to a brief jump in Robinhood’s stock shortly after its listing in 2021.

“High levels of initial interest . . . may result in an unsustainable market price, in which case the market price of our class A common stock may decline over time,” the prospectus noted. 

Huffman holds restricted stock that would vest if Reddit attains a $5bn market capitalisation after the offering, according to the filing. People close to the situation said previously that it was aiming to achieve an initial valuation of at least $5bn when it goes public.

Reddit is battling the dominant Silicon Valley giants such as Meta and Google for marketing dollars as the advertising market recovers from its recent slump.

Beyond advertising, Reddit is seeking to diversify its revenues, for example by charging third parties to access its data, which was previously free. Separately on Thursday, it announced that it had struck a deal with Google that would “usher in new ways for Reddit content to be displayed across Google products” while allowing the search engine to use Reddit posts to train its artificial intelligence models. On Wednesday, Reuters reported that the deal was worth about $60mn annually.

Reddit is also seeking to generate revenue by formalising some of the marketplaces that have emerged on the network, such as subreddits where users pay each other for Photoshop requests or sell sneakers.

Entities affiliated with Sam Altman, chief executive of artificial intelligence group OpenAI, beneficially own more than 5 per cent of the outstanding capital stock, ahead of the debut, according to the prospectus. Altman was, at the time of the 2021 financing, a member of Reddit’s board of directors, the filing said. 

Reddit first filed a confidential version of its prospectus more than two years ago, but its listing plans were derailed as rising interest rates and falling tech valuations caused most new listing activity to freeze.

Activity has been picking up in recent months, however, as investors grow increasingly confident that rates have peaked, and stock indices notch new record highs.