April 24, 2024

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Reddit, investors are looking for up to $748 million in the planned IPO

Reddit, investors are looking for up to $748 million in the planned IPO

(Bloomberg) — Reddit Inc. is seeking… and its investors to raise up to $748 million in what would be one of the largest initial public offerings so far this year, according to people familiar with the matter.

The social media platform and some of its existing shareholders plan to sell 22 million shares for $31 to $34 per share, said the people, who asked to remain anonymous because the information has not yet been made public. Bloomberg News reported that the company was seeking a valuation of up to $6.5 billion in the listing.

The company set aside about 1.76 million shares in the IPO to be purchased by users and moderators who created accounts before Jan. 1, the people said. These shares will not be subject to a lock-up period, meaning owners can sell them on the site. Opening day of trading, according to Reddit's February filing with the U.S. Securities and Exchange Commission.

A Reddit representative declined to comment.

Reddit Rating

Reddit's efforts to list over more than two years reflect the ups and downs of the market, starting with its secret initial filing in 2021, when initial public offerings on U.S. exchanges hit an all-time record of $339 billion, according to data compiled by Bloomberg. Reddit raised money that year at $10 billion, and Bloomberg News reported the following year that it could be valued at up to $15 billion in an IPO.

Meanwhile, IPOs in the US have fallen, reaching just $26 billion last year, data show. In January, Bloomberg News reported that Reddit was weighing feedback from early meetings with potential IPO investors that it should consider a valuation of at least $5 billion.

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The company is a high-profile addition to this year's list of new companies that will soon go public. The largest of these listings was the offering by Amer Sports Inc. Valued at $1.57 billion in January. Astera Labs Inc., an artificial intelligence-focused software maker, said in a statement on Friday that it will seek up to $534 million in an initial public offering, which would likely complement Reddit's IPO.

Read more: Intel-backed Astera seeks $534 million in IPO through AI call

The Reddit listing will be closely watched by IPO candidates like Rubrik Inc. Data security startup backed by Microsoft and Waystar Technologies Inc. For health care payments. Their deliberations follow a quartet of US listings led by semiconductor designer Arm Holdings Plc at $5.23. The billion-dollar offerings in September failed to spark a lasting recovery in the market.

Reduce losses

Founded in 2005, Reddit averaged 73.1 million unique daily visitors in the fourth quarter, according to its February data. The company reported a net loss of $91 million on revenue of $804 million in 2023, compared to a net loss of about $159 million on revenue of $667 million the previous year.

Reddit's largest shareholder is Advance Magazine Publishers Inc., part of the publishing empire of the Newhouse family that owns Conde Nast, which bought Reddit in 2006 and spun it out in 2011.

Reddit said millions of loyal users and moderators pose a risk as well as a benefit to the company. Redditors have a historically combative relationship with the site, launching rampages over everything from racism on the platform to hiring decisions made by executives.

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Stock meme

Thousands of members of the WallStreetBets forum — which has about 15 million users and helped popularize meme stocks like GameStop Corp. — voted. – To promote a forum post about shorting Reddit stock when trading begins. Their reasons varied from the company's lack of profitability to competitive concerns.

Read more: The success of Reddit's IPO depends on the company's wild user base

The IPO is being led by Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of America, according to a Reddit filing. The company plans to trade its shares on the New York Stock Exchange under the symbol RDDT.

Reddit co-founder and CEO Steven Huffman said in a signed letter included in the filing that the company has many opportunities to grow both the platform and the business.

“Advertising is our number one business, and advertisers of all sizes have discovered that Reddit is a great place to find high-intent customers they can't reach anywhere else,” Hoffman said. “Advertising on Reddit is evolving rapidly, and we are still in the early stages of growing this business.”

Artificial Intelligence License

Reddit said it is in the early stages of allowing third parties to license access to data on the platform, including training AI models. The company said that in January it entered into a data licensing arrangement with a total contract value of $203 million and terms ranging from two to three years. It expects at least $66.4 million in revenue from those agreements this year, according to the filing.

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Reddit also announced a deal with Alphabet Inc.'s Google, allowing Google's AI products to use Reddit data to improve their own technology. Large language models often need large amounts of human-generated content to optimize.

Hoffman owns shares that give him 3.5% of voting power. That includes Class B shares, which will each have 10 votes, compared to one vote for each Class A share that will be sold in the IPO, the filing shows. Huffman also has a voting proxy agreement with Advance.

Other major shareholders include Chief Operating Officer Jennifer Wong, as well as FMR LLC and entities affiliated with OpenAI CEO Sam Altman, Tencent Holdings Ltd., Vy Capital, Quiet Capital and Tacit Capital, according to the filing.

Hoffman's fellow co-founder, venture capitalist Alexis Ohanian, is not listed among investors with stakes of 5% or more and is not named elsewhere in the filing.

–With assistance from Priya Anand, Ryan Gould, and Katie Ruff.

(Updates with Reddit's response in fourth paragraph)

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