Introduction To Reddit IPO And Its Significance
Reddit, which gave rise to the meme stock frenzy, is rekindling its plan to go public. However, the social media platform is expected to be worth significantly less than its previously estimated value of $15 billion. According to sources familiar with the matter, the company is set to make its debut on the stock exchange via an initial public offering in the second half of 2024. Reddit had confidentially filed the papers to initiate the IPO process in December 2021. Earlier, in August 2021, the company had received a valuation of $10 billion in a private funding round and was expecting a valuation above $15 billion in the IPO, as per a Reuters report.
Overview Of Reddit's History And Popularity
Reddit is a dynamic social network that offers a wide range of communities for users to engage in discussions on various topics, including psychology, self-help, politics, games, memes, and amusing animal videos, such as AnimalsBeingConfused. Additionally, Reddit has become an essential platform for retail investors to share advice and ideas, with the WallStreetBets subreddit gaining notoriety for its role in promoting meme stocks like GameStop and AMC in early 2021.
The company was established in 2005 by Steve Huffman and Alexis Ohanian, who were roommates at the University of Virginia. The following year, it was purchased by the major US media company, Condé Nast Publications. Reddit later gained independence in 2011 as part of Condé Nast's parent company, Advance Publications. After several funding rounds, including a $700 million round led by Fidelity in August 2021, the company's valuation increased to more than $10 billion. In December 2021, Reddit filed for an initial public offering (IPO) with the aim of achieving a valuation exceeding $15 billion.
Reddit's Revenue and Growth Over The Years
In Q2 2021, Reddit earned $100 million in ad revenue, a significant increase from the $33 million it earned during the same period in 2020. To avoid ads, users can purchase a premium membership that costs $5.99 per month or $49.99 per year. This membership provides an ad-free browsing experience, access to r/lounge, 700 free monthly coins, and other perks.
Reddit also generates revenue through Reddit Coins, which users can buy in bundles and give to others as a form of reward. The cost of these coin bundles ranges from $1.99 to $199.99, and users who purchase them can also access the r/lounge.
Moreover, Reddit has raised $919 million through eight rounds of fundraising, with contributions from 27 different institutional investors.
Analysis Of Reddit's Financials
Although not required to disclose its financial information like public companies, Reddit reported advertising revenues of $100 million in Q1 2021. In August 2021, Reddit raised $410 million in its series F funding round led by Fidelity Investments, which brought its valuation to $10 billion. Prior to that, the company had raised $250 million in a funding round in February 2021, which valued it at $6 billion. Previous investors in Reddit include Tencent Holding Ltd. (TCEHY), Sequoia Capital, Fidelity, Tacit Capital, and Snoop Dogg. Reddit has over 57 million daily active users and more than 13 billion posts and comments on its website.
Reddit's Current Valuation
As per CB Insights' roster of unicorn companies, which are privately held businesses valued at $1 billion or more, Reddit's valuation stands at $10 billion. However, this figure has declined from its 2021 valuation of $15 billion. In February, Fidelity Investments assessed the company's valuation to be $6.6 billion, which indicates a general drop in the stock market, tech firm valuations, and economic instability.
Final Thoughts On The Future Of Reddit and Its IPO
The initial public offering (IPO) market is currently experiencing a lack of heat. PricewaterhouseCoopers' report titled "Global IPO Watch" shows a significant decline in IPO activity during 2022, resulting in a 70% reduction in global IPO proceeds compared to 2021. Along with Reddit, other prominent entities, including Stripe Inc., an American and Irish financial services and software as a service (SaaS) company, Instacart, an online grocery delivery provider that postponed its IPO plans in late 2022, and Chime Financial Inc., a well-known fee-free mobile banking service provider, are considering going public in 2024.
To achieve a successful IPO in this unenthusiastic market, Reddit needs to convince potential investors that it can generate revenue through advertising even in a downturn economy. This might require presenting additional ads to users or making them more conspicuous or invasive, which could drive away some users. With the current financial market turmoil, Reddit's management will evaluate whether the timing is appropriate for a 2024 IPO or if they should consider pushing it to 2024 or later.
