Reddit shares surged 43.41% to $48.76 per share on strong Nasdaq debut. The popular news aggregation social media site priced its initial public offering at $34 a share, at the high end of its expected range of between $31 and $34 a share.
Reddit is raising $519.4 million from the sale of nearly 15.3 million shares. Other Reddit investors are selling an additional 6.7 million shares through the IPO. Shares are trading Thursday on the New York Stock Exchange under the ticker RDDT.
Investors hope Reddit's IPO could spark a rebound for new stock offerings after down years in 2022 and 2023. Following a record-setting year in 2021 when nearly 400 companies went public in the U.S. and raised $142.4 billion, issuance slowed to 179 companies generating a combined $27.1 billion in the past two years, according to Renaissance Capital.
Reddit's IPO comes one day after another unicorn, artificial intelligence infrastructure provider Astera Labs, debuted with a 72% gain in its shares.
There are worries about Reddit that investors need to consider, most notably that the company is still losing money and that revenue growth slowed in 2023. Reddit also generates nearly all of its sales from advertising, which is a notoriously fickle and cyclical market. Regulatory concerns about data licensing for artificial intelligence could also be an issue.
Reddit is a well-known brand with a zealous base of users and meme stock investors, some of whom will be getting access to shares before they start trading. The company also has some impressive investors backing it, including top shareholder Advance Magazine Publishers, which owns Condé Nast, as well as owner OpenAI CEO Sam Altman, mutual fund powerhouse Fidelity, and Chinese social media company Tencent.
Even if shares of Reddit surge in their first day of trading, the jury is still out as to whether or not the stock will be a long-term success story and if Reddit can help prop open the IPO window. Investors may be more discerning than they were when the IPO market unfroze in 2021 after a Covid-induced lull. Reddit itself was valued at $10 billion based on its last round of financing three years ago.
"The market will judge companies with a far more rigorous set of metrics than 2021," said Joe Endoso, CEO of Linqto, a firm that offers investors shares in private companies before they go public. "That will narrow the eligible list of candidates. Growth is not enough."
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