Reddit opens up 38%, as shares begin trading

Shares of Reddit opened up about 38% on their first day of trading Thursday, a sign of investor eagerness that has paved the way for more tech companies to go public this year.

Shares of the social media company began trading on the New York Stock Exchange at $47 after price at $34 Wednesday when it went public and continued to grow. Pop estimates Reddit's market capitalization at around $9.2 billion, less than the 10 billion dollars that it was valued on private markets three years ago.

The listing is an important step in a long road for Reddit, founded in 2005 in San Francisco. The site is best known for its message boards, where users can gather in forums called subreddits to search for and discuss everything from parenting to pressure washing to Labrador retrievers. Over the years, the company has faced many of the problems that larger social media companies face, like how to moderate speech and how to make money.

“The process of becoming a public company has made us much better,” Steve Huffman, Reddit's chief executive, said in an interview Thursday morning. “We ship better products, faster. »

Reddit's performance indicates that public markets have an appetite for more technology offerings after public listings failed due to rising interest rates and economic uncertainty. Just over 100 companies went public in the United States last year, about a quarter of the number going public in 2021, according to data compiled by Renaissance Capital, which runs exchange-traded funds focused on IPOs in stock exchange.

Reddit's IPO wasn't guaranteed to be a success. The company is growing, but it is unprofitable and faces questions about the strength of its advertising and data licensing businesses.

Astera Labs, an artificial intelligence company, rose 72% on its first day of trading on Wednesday, which, combined with Reddit's debut, could encourage other private technology companies to go public. These include Rubrik, a cloud data management company; SeatGeek, a ticketing provider; and ServiceTitan, a home services software company.

A key question for tech companies mulling an offering is whether they should temper their valuation expectations. Many private technology companies that raised funds in a euphoric investment environment have since raised funds at lower valuations.

Against this backdrop, some large, well-funded tech companies, like payment processing company Stripe, appear to be in no rush to go public. Stripe, based in San Francisco, said last month that it had bought back shares from its employees, allowing them to partially cash out their stake in the company without an IPO

Reddit's first day of trading was also a test of whether it would become a “meme stock“, which is when a company reaches a herd-like audience on social media and its shares can be promoted or pilloried for the financial gain of its followers. A subreddit, WallStreetBets , has developed a powerful role in financial markets as a promoter of meme stocks, serving as a place where traders gather, exchange tips and discuss.

In its public offering, Reddit offered up to 8% of its shares to Redditors, people who regularly use the site, an unusual move to reward some of its most loyal users.

Typically, large financial institutions can participate in an IPO the day before the company is listed. These institutions are the ones that can benefit the most from selling to the “pop” of retail investor interest the next day.

“It’s a way to build loyalty,” said Jay Ritter, a finance professor at the University of Florida. “The company says, 'Look, we want successful people to get benefits.'”

This also creates risks. Shares of Robinhood, a stock trading and investing app that decided to sell up to a third of its offering to retail traders through its own app in its own IPO, closed down 8 percent on its first day of trading when it became public in 2021.

One of the biggest winners from Reddit's public offering was the Newhouse family, the media dynasty that controls Condé Nast through its holding company Advance Publications. The Newhouses were expected to reap a windfall of about $1.4 billion from the roughly 30% stake they hold in Reddit. Other main shareholders They include Tencent, the Chinese internet company, and Sam Altman, the chief executive of OpenAI.

“We did it, mom,” Alexis Ohanian, one of the site’s co-founders, said on social media. job THURSDAY. Mr. Ohanian, who previously served as chairman of Reddit's board, is no longer the largest shareholder nor does he have an operational role at the company. He and Mr. Huffman parted ways after differences over how discriminatory speech should be moderate on the site.

At the New York Stock Exchange on Thursday, Huffman highlighted the company's improved pace of adding new features over the past year and improving tools for moderators, thousands of volunteer users who oversee the site's subreddits.

These changes – and the specter of more to come – are still a source of tension for many of Reddit's more than 70 million daily users. Many have expressed concern about how the pressures of quarterly reporting and the demands of Wall Street could affect the site's operation, saying product profits could undermine what made Reddit, Reddit.

“It’s a natural feeling and one that we share,” Mr. Huffman said in Thursday’s interview. “But we love Reddit – it’s the emotion we all have in common. And it's important for us to treat Reddit with respect as we move forward.

He added: “But I can’t say much – now we have to show it. »

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