Reddit, the community-focused bulletin board site, filed to go public 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 a drought in its initial public offering. Tao offering.
In its offering prospectus, Reddit disclosed its financial performance in preparation for selling shares to investors. The San Francisco-based company reported narrowing losses and increasing revenue by more than 20% last year. It added that it has 73 million daily users and more than 100,000 active communities.
The prospectus kicks off the stock market process, where the 18-year-old company plans to meet with potential investors and drum up interest in buying shares. Reddit could be listed on the New York Stock Exchange in the coming weeks under the stock symbol RDDT. Reddit's bankers are seeking a valuation of at least $5 billion for the IPO, two people familiar with the matter said. This is roughly half of the $10 billion valuation the company received in a private funding round in 2021. Negotiations are continuing and prices could rise or fall in the coming weeks.
Reddit was the last of the older generation of social media companies to aim for the stock market, after Facebook in 2012, Twitter in 2013 and Snap in 2017. Since then, the social media industry has changed and faced increased scrutiny. About misinformation, hate speech, and other influences. Some companies have changed direction. Facebook was renamed Meta, and Twitter was acquired by Elon Musk, took the company private and renamed it X in 2022.
There are high expectations for Reddit's move as initial public offerings have come to a halt. Just 108 companies went public in the U.S. last year, representing about a quarter of the companies that went public in 2021, according to data compiled by Renaissance Capital. Last year's biggest technology products included chip design company Arm and his grocery delivery company Instacart.
“We are going public to advance our mission and become a stronger company,” Reddit CEO Steve Huffman said in a founder's letter included in the prospectus. “We expect our initial public offering to also bring meaningful benefits to our community. Our users have a deep sense of ownership in the communities they have created on Reddit.”
Huffman added that the company wants “this sense of ownership to be reflected in actual ownership, where the user is the owner,” and that “becoming a public company allows us to do this.” . Reddit said it would reserve a portion of its shares at the IPO price if its 75,000 most prolific users want to buy.
Reddit said in its prospectus that its 2023 revenue would be $804 million, up about 21% from $666 million a year earlier. The company suffered a loss of $90 million in 2023, compared with a loss of $158 million the previous year, according to its prospectus.
The largest shareholders include Advance Magazine Publishers; Tencent Cloud Europe, Vy Capital, Fidelity Management, and Sam Altman, former Reddit board member and CEO of OpenAI.
Reddit's path to the public market was long and arduous. Founded in 2005 by Huffman and Alexis Ohanian in a dorm room at the University of Virginia, the site brings together anonymous users to discuss everything from popular TV shows to guitars to makeup to power washing machines. It started as a destination.
The site is unique in that it focuses primarily on a close-knit, mostly anonymous community, made up entirely of volunteers who self-govern forums, or “subreddits,” based on rules they create. was managed by. The sessions have become known as “AMAs'' (also known as “Ask Me Anything'' sessions), which sometimes include celebrities such as former President Barack Obama, Microsoft's Bill Gates, and actor Nicolas Cage. became.
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 networking efforts, Reddit initially shied away from making money by serving ads. Instead, we focused on forms of revenue that can be derived from community ideas, such as user-generated e-commerce systems and perks that users can buy from each other. Those ideas are still alive today.
Reddit ultimately embraced topic-focused, community-based advertising. For example, brands like Laneige targeted ads to a forum called Makeup Addiction, one of the most active subreddits, where users were discussing cosmetics and how to apply them.
The site has also built a new data licensing business based on its vast corpus of conversational data, which has become increasingly important amid the enthusiasm for artificial intelligence. AI models are trained on such chunks of data to become more powerful. On Thursday, Reddit announced a licensing agreement with Google, which has been using Reddit's data to train and build AI systems.
“We expect our data advantages and intellectual property to continue to be a key factor in training future AI models,” Huffman said in the letter. The company has a number of undisclosed license agreements to use its data and expects to generate more than $203 million in revenue from those deals over the next three years, according to the filing.
This site has had its fair share of challenges as well. In its early days, the company played a role in spreading misinformation during the 2013 Boston Marathon bombings, and hosted racist and misogynistic content on some of its smaller subreddits. It faced controversy after controversy over its rejection of moderate communities. Last year, Reddit faced a user revolt after changing some of its rules to restrict third-party developers from using the site's content without paying.
Reddit has reversed its stance on moderation in recent years, updating and enforcing its policies more strictly and making it more attractive for marketers to run ads across the site.
The company also had a revolving door of leaders during its first decade, with four CEOs at the helm before Huffman returned to the top of the site in 2015.
Reddit warned potential investors that the company faces challenges and potential risks as a public company. Among them is the rise of large-scale language models and the foundation that could potentially aggregate and synthesize the site's content, allowing users to browse Reddit without visiting the site or seeing ads. This includes the rise of AI systems.
The company could also have trouble winning over brands in a digital advertising market dominated by Meta and Google.
Eric Seufert, an independent mobile analyst who closely monitors social media companies and advertising, said, “Reddit has a strong interest in the advertising business given the gap between its platform capabilities and best-in-class capabilities.'' may face difficult challenges in its growth.”
The company also warned that it relies heavily on its community to manage its platform and that future uprisings or defections could damage the site.
“We have a lot of opportunity and a lot of work to do,” Huffman said.
lauren hirsh I contributed a report from New York.
