Reddit files for IPO after holding off for years

Reddit has filed for an initial public offering, confirming its revenue growth and helping to propel a still tenuous resurgence in US listings.

The San Francisco-based company, in what is set to be one of the biggest listings of the year, filed Thursday with the US Securities and Exchange Commission to move ahead with an IPO, more than two years after first submitting its plan confidentially.

Reddit will not disclose proposed terms for the IPO, including its valuation in a listing, until a later filing.

The company has been advised to consider a valuation of at least $5 billion in an IPO and could begin marketing the shares as soon as March, Bloomberg News previously reported.

Reddit, founded in 2005, averaged 73.1 million daily active unique visitors in the fourth quarter, according to the filing. It became an icon of the so-called meme-stock era after a forum on the site, WallStreetBets, jolted the stock market.

The company reported a net loss of $90.8 million on revenue of $804 million in 2023, compared with a net loss of $158.6 million on revenue of $666.7 million a year earlier.

The company is a high-profile addition to the year’s roster of newly and soon-to-be public companies. Thirty-four companies have raised more than $7.1 billion in IPOs on US exchanges since January 1, according to data compiled by Bloomberg.

The biggest of those listings was the $1.57 billion offering by Amer Sports in January.

Shares of those companies have gained more than 14 per cent on a weighted average basis.

Semiconductor designer Arm Holdings, whose $5.23 billion offering was the biggest of last year, has since rocketed 152 per cent. But 166 other companies that raised about $21 billion last year have gained an average of only 13 per cent, the data show.

Reddit could be 2024’s first major test of the market for a technology start-up backed by venture capital. The company, which has raised $1.38 billion, was valued at $10 billion after a 2021 financing round, according to data provider PitchBook.

Its filing comes after that of another start-up, Astera Labs.

Its listing will be watched closely by IPO candidates such as Microsoft-backed data security start up Rubrik and healthcare payments company Waystar Technology.

“Advertising is our first business, and advertisers of all sizes have discovered that Reddit is a great place to find high-intent customers that they aren’t able to reach elsewhere,” Reddit chief executive Steven Huffman said in the filing.

“Advertising on Reddit is rapidly evolving, and we are still in the early phases of growing this business.”

Reddit said it is in the early stages of allowing third parties to license access to data on the platform, including to train artificial intelligence models.

In January, Reddit entered into data licensing arrangements with an aggregate contract value of $203 million and terms ranging from two to three years, it said. It expects a minimum of $66.4 million of revenue from the agreements this year, according to the filing.

On Thursday, Reddit also announced a deal with Google, allowing its AI products to use Reddit data to improve their technology. Large language models often need vast troves of human-generated content to improve.

The company will set aside shares in the IPO to be bought by users and moderators who created accounts before January 1, according to the filing.

The amount of stock to be allotted in the directed share programme will be disclosed at a later date. Those shares will not be subject to a lockup period, meaning the owners can sell them on the opening day of trading.

That programme could be a way for Reddit to generate enthusiasm for the stock, said Greg Martin, co-founder of Rainmaker Securities.

Based on the company’s revenue, Mr Martin said he expected Reddit to have a hard time reaching the $4.8 billion valuation it is traded at in the private secondaries market.

“It’s clear that sophisticated investors won’t be excited about buying into the public debut, likely explaining why Reddit will be offering shares to their users, to have stock supporters and get fans to prevent a negative meme stock phenomenon,” Mr Martin said.

Reddit’s largest shareholder is Advance Magazine Publishers, part of the Newhouse family publishing empire that owns Conde Nast, which bought Reddit in 2006 and spun it out in 2011. It holds 34 per cent of the voting power before the offering, the filing shows.

Mr Huffman owns shares giving him 3.5 per cent of the voting power. That includes Class B shares that will have 10 votes each, compared with one each for the Class A shares to be sold in the IPO, the filing shows. Mr Huffman also has a voting proxy agreement with Advance.

Other large shareholders include chief operating officer Jennifer Wong, as well as FMR and entities affiliated with OpenAI chief executive Sam Altman, Tencent Holdings, Vy Capital and Quiet Capital and Tacit Capital, according to the filing.

Mr Huffman’s fellow co-founder, venture capitalist Alexis Ohanian, is not listed among the investors with stakes of 5 per cent or more and is not named elsewhere in the filing.

Reddit has made investments in cryptocurrencies, though the digital assets held in treasury are limited to those recognised by the SEC as probably not being securities, the filing shows.

It invested some of its excess cash reserves in Bitcoin and Ether, and acquired Ether and Matic as a form of sales payment for some virtual goods.

The offering is being led by Morgan Stanley, Goldman Sachs Group, JP Morgan Chase and Bank of America.

The company plans for its shares to trade on the New York Stock Exchange under the symbol RDDT.