Stock Market

Reddit Poised to Reward Its Avid User Base in Upcoming Public Offering

In a move that combines gratitude with investment opportunity, Reddit Inc. is paving the way for its most dedicated users to become stakeholders in the company. With an imminent initial public offering (IPO) on the horizon, Reddit has extended a pre-registration offer to approximately 75,000 users—moderators and prolific contributors—who have helped curate the platform's wealth of content, often without any financial compensation. This initiative is seen as an attempt by the social media giant to acknowledge the efforts of these users by allowing them a stake in what could be an impressive financial future.

The company's target date for IPO registration has been a focal point for those deeply invested in the platform's community. However, the reception has been mixed with a considerable degree of skepticism. Reddit's r/WallStreetBets forum, famous for its candid finance discussions, has notably expressed doubts, with some users even considering betting against the shares. They argue that despite the company's substantial two-decade presence online, profit margins remain negative—last year witnessing a loss of $90.8 million, albeit an improvement from the $158.6 million deficit the previous year.

Additionally, Reddit's recent business decisions have not been wholly embraced by its users. For instance, a price hike for Reddit's data access last year sparked protest from multiple forums, claiming it inhibited their ability to develop apps for the platform—a clear indication of the complex relationship between the company and its users.

Growing Despite Skepticism: Reddit's Expanding User Base

Yet, despite the internal criticism and controversy, Reddit's traffic and user metrics paint a picture of consistent growth, a key selling point that investors are keen to consider ahead of the company's eagerly awaited IPO. The platform marked a 27% increase in daily active users during the last quarter of 2023—its most notable surge in the previous seven quarters. Weekly active users reached 267.5 million, a figure that overshadows the impressive 100 million purported for the viral ChatGPT chatbot. Additionally, analytics from Similarweb place Reddit firmly among the top 10 most-visited websites in the United States.

"Reddit is a unique asset and a very popular portion of the internet community," acknowledges Matthew Kennedy, a senior strategist at Renaissance Capital. "There are reliable users," he added, although he also noted the platform's stock forum's bearish attitude toward the IPO. Kennedy concludes on an ambivalent note, hinting at the unpredictable market, "With this stock, anything could happen."

A High-Stakes Debut Amid a Tech Slump

Reddit's journey towards a public offering has been fraught with hesitation, with plans put on pause for over two years as the tech startup ecosystem grappled with instability. However, the platform is now set to be one of the frontrunners in technological IPOs this year. This bold move hints at a potential flurry of public offerings from the sector. Currently led by co-founder Steve Huffman, Reddit could command a valuation reaching an impressive $6.5 billion. In light of the overall skepticism, the very fact that Reddit is advancing toward an IPO at all highlights its enduring influence on digital culture.

Reddit’s Unique Dichotomy: Fiercely Loyal Yet Combative Users

The quandary faced by Reddit is rare: managing a user base that is both fiercely loyal and highly critical. Users on Reddit have not shied away from vocalizing their discontents, launching revolts on subjects varying from racism on the platform to disapproval of executive decisions. Reddit, known for its diverse forums or "subreddits," sometimes struggles with toxic content, drawing the company into sensitive content moderation debates. These challenges notwithstanding, Reddit's community has demonstrated time and again its considerable influence on wider societal narratives, often in the most unforeseen ways.

The Meme Stock Phenomenon: Reddit’s Indelible Mark on Finance

Redditors are perhaps most notably credited for the meme stock phenomenon of 2021, which saw a euphoric rally in the stocks of companies like GameStop Corp. and AMC Entertainment Holdings Inc. The uprising sent ripples through the financial sector, challenging norms and expectations. Notably, this pivotal moment in financial history was brought to cinematic life in the 2023 release, "Dumb Money." With its upcoming IPO, Reddit is ironically on the precipice of possibly becoming one of the very meme stocks its users helped popularize.

In its IPO filing, Reddit has candidly highlighted the influence of the r/wallstreetbets forum, recognizing it as a potential risk factor that could bring "extreme volatility" to its stock performance. This self-aware disclaimer has not gone unnoticed amongst WallStreetBets users, who have met the mention with a certain degree of amusement and a "sly smiling emoji." The company has declined to comment further on the matter.

An Inclusive IPO Narrative: Power Users at the Forefront

Reddit's approach to its market debut breaks from tradition—the company is making a concerted effort to place its users, particularly those who tirelessly moderate and contribute to the platform, at the fore of its narrative. As of February 22, the day Reddit filed its paperwork, invitations have been dispatched to these 'power users,' inviting them to pre-register and become part of the IPO. This initial batch includes those moderators who are part of community programs, such as beta testing new features and policy updates.

CEO Steve Huffman, in a statement outlined in the company's filing, emphasised the importance of user ownership, saying, "Our users have a deep sense of ownership over the communities they create on Reddit. We want this sense of ownership to be reflected in real ownership—for our users to be our owners. Becoming a public company makes this possible."

A Long and Winding Path to Public Listing

Since its inception in 2005 as one of the inaugural ventures of Y Combinator, tech startup Reddit's journey to the IPO has been anything but straightforward. Interestingly, numerous other Y Combinator enterprises have reached the public markets even before Reddit. "Having seen a lot of startups and invested in a lot of startups, I've never seen such a winding path," remarked Jessica Livingston, co-founder of Y Combinator. Reddit has faced substantial tribulations, including a buyout by Conde Nast in 2006, multiple leadership changes, and intense public scrutiny over content moderation.

Navigating Leadership and Controversy

Throughout its history, Reddit has navigated through tumultuous executive changes, the prominent being Ellen Pao's interim CEO tenure which ended amongst a backdrop of severe online backlash and trolling—highlighting the darker aspects of the platform. Yet, the company persisted through these hardships, now led by its original co-founder Huffman, who returned in 2015 to guide Reddit through its next phase of growth.

Reddit recognizes its user base as the cornerstone of its potential for revenue growth. In its public offering documentation, the company outlines its efforts to monetize this asset, stating that it is "in the early stages of monetizing our user base." Currently, advertising stands as the primary revenue channel, but Reddit foresees the continuous scaling of its business model as the platform moves forward towards public trading.

The Future Monetization and Value Alignment

What remains to be seen is how this ambition to monetize the platform will resonate with its users post-IPO. Reddit's continuous engagement with its community and maintaining their satisfaction will be more crucial than ever upon going public. In a bid to stay true to its principles, Reddit aims to make decisions that reflect the company's values, emphasizing the rights of its users—the very same individuals responsible for the platform's vast repository of human experiences and thoughts.

As Reddit steps into a new era of financial opportunity, it reflects on the essence of its existence—a massive collection of genuine human interactions and experiences. "[Reddit is] one of the internet’s largest corpuses of authentic and constantly updated human-generated experience,” the company stated in its IPO filing. As it embarks on this transformative journey, it seeks to balance new revenue ventures with its foundational values and the rights of its Redditors. This endeavor, while fraught with challenges, is a testament to the company's dedication to its diverse and vibrant user community.

©2024 Bloomberg L.P. Source