April 17, 2024

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Reddit is going public, in the social media's first IPO in years

Reddit is going public, in the social media's first IPO in years

Reddit, the community-focused message board site, filed for an IPO on Thursday, paving the way for it to become the first major social media company to debut on the stock market in years and a test for private companies after an IPO drought. Offerings.

in Submitting a prospectusReddit revealed its financial performance in preparation for selling shares to investors. The San Francisco-based company said its revenues rose by more than 20 percent as its losses narrowed last year. It added that it has 73 million daily users and more than 100,000 active communities.

The prospectus kicks off a process on the stock market, where the 18-year-old company is scheduled to meet with potential investors to whet their appetite for its shares. Reddit could go public on the New York Stock Exchange within weeks under the stock symbol RDDT. Reddit bankers are seeking a valuation of at least $5 billion in the IPO, according to two people familiar with the matter. That's nearly half of the $10 billion valuation the company received in its 2021 private financing round. Talks are still ongoing, and it's possible the price will rise or fall in the coming weeks.

Reddit is the latest of an earlier generation of social media companies to target the stock market, following Facebook's high-profile offerings in 2018. 2012and Twitter in 2013 and Snap in 2017. In the years since, the social media industry has changed, facing scrutiny for misinformation, hate speech and other influences. Some companies have changed directions. Facebook was renamed Meta, and Twitter was bought by Elon Musk, who took the company private in 2022 and renamed it X.

Reddit's move is also highly anticipated after a lull in initial public offerings. Only 108 companies went public in the United States last year, roughly a quarter of the number that went public in 2021, according to data compiled by Renaissance Capital. Some of the biggest tech offerings last year were Arm, a chip designer, and Instacart, a grocery delivery company.

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“We are going public to advance our mission and become a stronger company,” Reddit CEO Steve Huffman said in the founder's letter included in the prospectus. “We hope that going public will provide meaningful benefits to our community as well. Our users have a deep sense of ownership of the communities they create on Reddit.

Mr. Hoffman added that the company wanted “that sense of ownership to be reflected in true ownership — that our users are our owners” and that “becoming a public company makes that possible.” Reddit said it would reserve a significant portion of its shares at the IPO price for 75,000 of the company's most prolific users if they wanted to buy it.

Revenue in 2023 was $804 million, up about 21 percent from $666 million the previous year, Reddit said in its prospectus. The company lost $90 million in 2023, compared to a loss of $158 million the previous year, according to the prospectus.

Among its largest shareholders is Advance Magazine Publishers. Tencent Cloud Europe, Vy Capital, Fidelity Management, and Sam Altman, former Reddit board member and CEO of OpenAI.

Reddit's road to the public markets has been long and rocky. Founded in a dorm room at the University of Virginia in 2005 by Mr. Hoffman and Alexis Ohanian The site began as a destination for anonymous users to meet and discuss anything from popular TV shows to guitars, makeup and electric washing machines.

The site was unique in that it focused largely on close-knit, mostly anonymous communities, all run by volunteers who self-managed their forums, or “subreddits”, based on rules of their own making. He became known for his “AMAs,” also known as “Ask Me Anything” sessions, sometimes held with public figures such as former President Barack Obama, Microsoft's Bill Gates, and actor Nicolas Cage.

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The company has raised hundreds of millions of dollars in funding over the years, including $250 million and more than $410 million in two funding rounds in 2021. Investors include Fidelity Investments, Andreessen Horowitz, Sequoia Capital and Tencent Holdings. Like other early social media efforts, Reddit initially avoided serving ads and making money. Instead, it focused on forms of revenue that came from community ideas, such as a user-created e-commerce system and prizes that users could purchase for each other. These ideas are still being implemented.

Reddit eventually embraced advertising based on its topic-focused communities. Brands like Laneige, for example, targeted ads to a forum called Makeup Addiction, one of the most active subreddits, where users discuss cosmetics and how to apply them.

The site has also built a data licensing startup based on its massive trove of conversational data, which has become increasingly important amid the AI ​​craze. AI models are trained on large amounts of this data in order to become more powerful. On Thursday, Reddit announced a licensing deal with Google, which has used Reddit data to train and build its own artificial intelligence systems.

“We expect our data and intellectual property advantage to remain a key component in training” future AI models, Mr. Hans said. Hoffman said in the letter. The company has a number of undisclosed licensing agreements to use its data and expects to earn up to $203 million over the next three years from those contracts, according to the filing.

The location has had its share of struggles. It faced controversy after controversy over its rejection of moderating communities in its early years, including its role in spreading misinformation during the Boston Marathon bombing in 2013, and hosting racist and misogynistic content on some of its smaller subreddits. Last year, Reddit faced a user revolt after changing some of its rules and restricting third-party developers from using the site's content without paying for it.

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Reddit has reversed its stance on moderation and updated its policies and stricter enforcement in recent years, making it more attractive for marketers to place ads across the site.

The company also had a revolving door of leaders in its first decade, with four CEOs at the helm before Mr. Trump took over. Hoffman returned to lead the site in 2015.

Reddit has warned potential investors that it faces potential challenges and risks as a public company, including the emergence of large language models, underlying artificial intelligence systems that potentially collect and synthesize site content and allow users to view Reddit without visiting the site or seeing ads.

The company may also have difficulty attracting brands in a digital advertising market dominated by Meta and Google.

“Reddit may face a significant challenge in growing its advertising business, given the gap between its platform’s capabilities and those of the best in class,” said Eric Sievert, an independent mobile analyst who closely monitors social media and advertising companies.

The company also warned that it relies heavily on its community to manage the platform, and that future revolts or departures could harm the site.

“We have a lot of opportunities and a lot to do,” he added. Hoffman said.

Lauren Hirsch He contributed reporting from New York.