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Social media company Reddit has priced its shares at $34 ahead of its expected public debut in New York on Thursday, coming in at the top of previous price guidance, giving it a fully diluted valuation of $6.4bn.
The pricing, announced by the company in a statement on Wednesday, puts Reddit’s valuation well below the $10bn it received at its last private fundraising in 2021.
Based on the number of shares outstanding immediately after the IPO, the price implies a market capitalisation of $5.4bn. Including options that are likely to be exercised, the value reaches $6.4bn.
Pricing at the top of the range is a vote of confidence in the company’s prospects. Earlier in the day, shares of Astera Labs, an AI infrastructure-related group, surged 72 per cent share in their public debut on the Nasdaq exchange — a pop that has added momentum to Reddit’s IPO book, according to people familiar with the deal.
In total the IPO raised $519mn for Reddit and a further $229mn for existing shareholders who sold stock in the sale. About 2mn of its shares have also been allocated to the site’s loyal users and moderators.
Demand for the IPO had built during its roadshow, resulting in Reddit’s stock being more than 10 times subscribed, according to people familiar with the deal.
But some investors voiced concern around the quality of orders that boosted deal demand, equating it to a “B” level book. To improve the quality of who buys the shares and at what price, bankers can typically opt to distribute more shares to asset managers who want to own the company instead of “flipping” their allocation for a quick profit.
Trading is set to begin on the New York Stock Exchange under the ticker “RDDT”.
Reddit’s IPO has gained attention as the first high-profile company to go public in an otherwise quiet market over the past two years. It is viewed as a test for appetite for potential listings for the rest of the year, although it also has unique challenges, including the risk that it becomes a “meme stock” — its unruly users have already discussed deliberately shorting its shares when they start trading.
In the lead-up to the IPO, San Francisco-based Reddit has tightened its once lax moderation policies in order to build up its advertising business, which accounted for most of its $804mn in sales last year. Reddit has never made an annual profit. It posted a $91mn loss in 2023, according to regulatory filings.
During its roadshow, Reddit said it planned to diversify its revenues, for example adding ecommerce features and selling its data to artificial intelligence groups.
Steve Huffman, Reddit’s chief executive, sold 500,000 of his shares in the IPO, indicating he will make $17mn. He is also set to receive additional equity awards as a result of the listing valuing the company above $5bn.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
