Reddit: meme stock or tech giant?

Key points in this article

• Social Media Darling Goes Public: Reddit, known for its "wallstreetbets" forum, finally IPOed on March 21st, valued at $6.5 billion.
  
  
• UGC Powerhouse: Reddit leverages user-generated content to fuel growth, boasting 73 million daily active users and attracting a $60 million data deal with Google.
  
  
• Retail Investor Haven: Reddit's user base boomed during the meme stock frenzy, solidifying its position as the go-to platform for U.S. retail investors.
  
  
• Profitability on the Horizon: Despite revenue growth, Reddit remains unprofitable, though losses are narrowing. They project strong user growth moving forward.

Reddit, one of the world's most influential social platforms and known for the "wallstreetbets" forum, has finally confirmed its initial public offering (IPO) on March 21st. The company has been pursuing a listing for more than three years. Reddit's listing will be one of the largest initial public offerings so far in 2024. This is also the first IPO of a large social media company since Pinterest went public in 2019. The number of Reddit users has exploded during the pandemic when U.S. stock retail investors who were active on the Reddit forum gathered together to speculate on GME and other meme stocks. It is regarded as the "base camp for retail investors in U.S. stocks".

Long-awaited IPO

Sam Altman, the CEO of OpenAI, is disclosed as the 3rd largest shareholder, following Advance Magazine Publishers and Tencent. The company is valued at as much as USD 6.5 billion. Reddit's IPO will be a major confidence test for investors' interest in new stock listings now. It has been more than two years since Reddit began preparing for its listing. So far this year, the recovery of the IPO market has been uneven. On a fully diluted basis, Reddit is valued below its USD 10 billion valuation in its 2021 funding round. The company will list on the New York Stock Exchange under the ticker "RDDT"

Revenue Model

In terms of financial performance, the prospectus shows in 2022 and 2023, Reddit's annual revenue will reach USD 667 million and USD 804 million respectively, a year-on-year increase of 20.5%. In addition, the company's net loss in 2022 was USD 159 million. Although it will still be in the red in 2023, the loss has narrowed to USD 91 million. Reddit also revealed in the IPO document that as of December 31st, 2023, its average daily active users were 73.1 million and weekly active users were 268 million. At the same time, there are more than 100,000 active communities on the platform, and the cumulative number of posts on the platform has reached 1 billion. Interestingly, Reddit, which has emerged based on the UGC model (User Generated Content), has formulated a directional share plan and invited some Reddit moderators and users to purchase the company's Class A common shares before the IPO.

In February 2024, Reddit and Google announced that they have reached a license agreement worth approximately USD 60 million per year. Reddit comments: "We believe that our growing platform data will become a key element in leading large language model ('LLM') training and become an additional revenue channel for Reddit."

Growth Expectation

As of December 2023, Reddit has projected 27% year-on-year growth in terms of daily active users, with 36.4 million users based in the US, while 36.7 million are based in the rest of the world. To further strengthen its user economy, Reddit's user-created content is seen as a unique positioning of real human experience.