In a significant move that could reshape the landscape of social media IPOs, Reddit, the San Francisco-based online discussion platform, is gearing up for its initial public offering (IPO) in March 2024. Much of the media hype around the IPO is centered on the $5 billion valuation that it has been advised to go to the market with.
Let's explore the backstory and essential information that potential investors need to understand about the IPO.
The Long-Awaited IPO
With plans set in motion after years of contemplation, Reddit's IPO could mark a turning point in the tech offering market, following a drought since Pinterest Inc's (NYSE: PINS) debut in 2019. After at least three years of considering an IPO, Reddit filed confidentially for a public offering in December 2021.
However, plans were put on hold amid challenging business climates in the subsequent year, aligning with the broader trend of delayed IPOs in the tech sector. Per media reports, Reddit is planning a March 2024 IPO.
Tech IPO Dynamics
Reddit's IPO marks a significant moment, ending a notable lull in new tech market entries. The scarcity of IPOs was particularly apparent in 2023, with only a couple of major venture-backed startups, Maplebear Inc, which operates under the trade name Instacart (NASDAQ: CART), and Klaviyo Inc (NYSE: KVYO), making their way to the public market. Both faced challenges on the public markets.
The tech industry is hopeful for a revival in IPOs in 2024, with Reddit's offering expected to play a pivotal role in kickstarting the market. Other high-profile potential IPOs this year include digital payments platform Stripe and the fast-fashion giant Shein, adding to the anticipation of the investment community.
IPO Valuation
As Reddit prepares to enter the public market, the company plans to sell approximately 10% of its shares. However, a target valuation for the IPO has not been set yet. Founded in 2005, Reddit has raised a substantial $1.3 billion from private investors, boasting support from Silicon Valley heavyweights such as Sequoia Capital, Andreessen Horowitz, and Coatue.
Fidelity led Reddit's Series F raise in 2021 at a valuation close to $10 billion, though it later marked down the value of its holdings in the company by 41%.
In January, reports of Reddit being encouraged by potential investors to aim for a valuation exceeding $5 billion in its impending initial public offering (IPO) dominated the market.
Advertising Revenue, Yet To Turn A Profit
While Reddit has grown its business, generating over $800 million in advertising revenue in 2023, the company has yet to turn a profit. CEO and co-founder Steve Huffman acknowledged in a Reddit discussion with users last year that Reddit had stalled its IPO plans to move closer to profitability before facing public market scrutiny.
Despite falling slightly short of internal revenue targets for the year leading up to the IPO, Reddit's foray into the public market remains highly anticipated.