Company / Analytics

Analytics, 16 December 2021

What Investors should know about Reddit IPO

Reddit confidentially filed for an IPO with the US Securities and Exchange Commission but gave no further details.

Reddit’s IPO is set to be one of tech’s hottest public offerings yet. The company has been looking to build on the attention it gained since early 2021 when its #WallStreetBets forum became a hot spot for individual investors who rallied around GameStop Corp. and other stocks ‘meme’ stocks.

As of August, Reddit was valued at about $10 billion after raising more than $400 million from Fidelity Investments Inc. In February, Reddit said it had raised about $500 million at a $6.5 billion valuation. Reddit’s other investors include venture-capital firms Andreessen Horowitz and Sequoia Capital, and Chinese technology conglomerate Tencent Holdings Ltd.

Reddit’s IPO comes in a year that saw record IPOs; more than 900 companies went public in 2021, raising nearly $300 billion. These firms included electric vehicle maker Rivian Automotive Inc., dating app Bumble Inc. and mobile-videogame maker Playtika Holding Corp., among others.

What is Reddit?

Reddit is the uber-popular social media platform that is known as “the front page of the internet.” Reddit is essentially a massive message board with millions of active and committed users sharing everything from their thoughts on politics to instructions for how to bake the perfect cookie. The company was founded in 2005.

Reddit is currently the 19th most visited website on the internet, with its number of registered users has grown steadily over the past few years. The site has been the center of controversy numerous times, with everything from alleged stock manipulation (see posts on: “GME to the moon”) to illegally leaked photos of celebrities in the nude, and everything in between.

Reddit’s different communities, called subreddits, range in the topics they cover, spreading from politics to public freakouts to specific video games (if you can think of a topic, there’s probably a subreddit about it).

How is Reddit going public?

Reddit announced it will go public via a traditional initial public offering (IPO). In recent times companies have been going public through Special Acquisition Vehicles (SPACs) and, interestingly, Reddit is not pursuing this route.

How many shares will Reddit issue?

Reddit did not clearly state the among of shares it will issue. In a statement, the company noted that “the number of shares to be offered and the price range for the proposed offering have not yet been determined.”

Reddit has not mentioned how it will price its shares. Reddit has also not mentioned what market its stock will trade, and even what the stock ticker will be.

How much Revenue does Reddit make?

Most of the revenue that the company brings in is generated from advertising to the tune of roughly $170 million in 2020.

The company just hired its first-ever chief financial officer, Drew Vollero, in what many see as a move towards going public through a Reddit IPO.

How much has Reddit Raised?

Throughout eight rounds of fundraising, Reddit has raised just under $1 billion, totaling $919 million from 27 different institutional investors. Most recently, the company raised $367.9 million during a Series E round of funding composed of four investors, including prominent venture capital (VC) firms Sequoia Capital and Andreessen Horowitz. Before this round, the highest amount Reddit raised in any one round of funding occurred in 2019, when a Series D round led by internet service provider Tencent helped Reddit bring in $300 million in new funds.

What do we know?

What is clear is that Reddit has confirmed it has “confidentially submitted a draft registration statement on Form S-1” with the SEC to take itself public.

Analysis

It is not clear why Reddit is being so secretive. But we can assume that the company honestly may not know how many shares it wants to offer at this point or have decided how much it wants to raise. Given Reddit’s IPO is expected to be one of the hottest of the year (whenever that is – likely 2022) the company probably doesn’t want to announce details, which could change, until closer to the IPO. Reddit seems poised to continue its recent rise in popularity, but does it have the makings of other social media titans like Twitter and Facebook? One source of security for investors to lean on is the incredibly vast range of individuals that the platform appeals to in one way or another, with more than 2.5 million different subreddits in existence, there is certainly something for everybody. Still, there are risks present, which investors will want to diligently analyze ahead of the potential Reddit IPO date.

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