Last updated on April 8th, 2024 at 10:10 am

The company’s stock price rose by almost 70% from its initial public offering (IPO), potentially leading Condé Nast’s parent company to gain nearly $1.4 billion

Reddit’s (RDDT.N) shares closed their first day of trading in New York up 48%, indicating a potential return of investor interest in IPOs of promising yet unprofitable companies.

The closing price was 48% higher than the initial offer prices, valuing Reddit at over $9 billion in a highly anticipated debut. The stock reached a peak of $57.80 per share, a 70% increase, before settling at $50.44 at the close of trading.

Initially priced at $34 per share, the San Francisco-based company’s IPO valued it at $6.4 billion, with $748 million raised by the company and its selling shareholders.

The IPO, which had been anticipated for over two years, was first filed confidentially in December 2021 but was delayed due to market volatility. The current valuation marks a decrease from 2021, when Reddit was valued at $10 billion in a private funding round.

Reddit’s strong market debut is poised to yield a substantial windfall for its largest shareholder, Advance Publications. The parent company of Condé Nast, known for publications like the New Yorker, Vogue, and Wired, stands to gain up to $1.4 billion from the IPO. Advance acquired Reddit for $10 million just 18 months after its launch.

Last year, Reddit’s co-founder and CEO, Steve Huffman, received a compensation package valued at $193 million. Alexis Ohanian, the site’s other co-founder, known as the company’s public face compared to Huffman’s more technical role, is not mentioned in the company’s filings with US financial regulators.

Major shareholders of Reddit also include Chinese gaming giant Tencent, which holds 11% of the company following a $300 million investment in 2019; Fidelity, which owns 9.5% through several investments; and Sam Altman, the CEO of OpenAI, who owns 8.7% after investing in 2014. Reddit was part of the first class of the influential Y Combinator startup accelerator program shortly after its founding in 2005, where Altman later served as president.

According to Julian Klymochko, CEO of alternative investment solutions firm Accelerate Financial Technologies, the enthusiasm for technology stocks, fueled by a scarcity of significant tech IPOs in recent years, is expected to give Reddit a strong debut on the market. However, investors will be closely monitoring the market in the coming weeks.

“If Reddit performs poorly, it could have a chilling effect on the IPO market,” Klymochko remarked. “Many companies may decide to pause their IPO plans.”

Since its inception in 2005, Reddit has become a cornerstone of social media culture. Its logo, featuring an alien head on an orange background, is one of the most iconic symbols on the internet. The company has long used the tagline, “The front page of the internet.”

With its 100,000 online forums, known as “subreddits,” Reddit facilitates discussions on topics ranging from the mundane to the profound, the trivial to the existential, and the humorous to the serious, according to Huffman.

Huffman himself sought assistance to quit drinking from one of the subreddits, as he mentioned in his letter. In 2012, former US President Barack Obama also participated in an “AMA” (“ask me anything”), which is internet slang for an interview, with the site’s users.

Despite its revered status in the realm of social media, Reddit has not achieved the same level of success as its larger competitors, such as Meta’s Facebook and Elon Musk’s X. According to its filings, Reddit has approximately 73 million unique daily visitors. In contrast, Facebook claims that 2 billion people use its app daily.

As part of its initiative to reward its user base, Reddit has set aside 8% of the shares for eligible users and moderators, specific board members, as well as friends and family of its employees and directors.

The company has stated that it is “in the early stages of monetizing [its] business” and has not yet achieved an annual profit. Analysts noted that investors would closely examine its strategy for becoming profitable.

“The significant news will come after the first earnings call – what direction are they taking, what are the financial results showing, and what adjustments are they planning to make,” commented Reena Aggarwal, director of the Georgetown University Psaros Center for Financial Markets and Policy.