Reddit’s Stocks Are Now Open To The Public; The First Social Media IPO In Years

Reddit has filed to go public, making its IPO available to its most active users through a directed sharing program. This isn't a common practice because IPOs are usually subscribed by institutional investors and naturally not everyone is happy about this move.

The more Karma points (a metric used by Reddit to measure a user's reputation on the app) you have, the more stocks you are likely to get.

Experts believe that opening the stocks to common people might make it riskier for other investors. In their words, allowing Redditors to participate could increase volatility in the market price of their Class A common stock.

This is because when investors buy an IPO, they usually agree to a lock-in period i.e. a period during which they'll not sell their shares. However, there will be no such restrictions on the shares issued to Reddit users. They can sell their shares at any time, making it volatile.

We can only hope that Reddit has some plans to control the volatility, especially considering that it has not yet revealed what percentage of shares will be available to the users.

However, if you're a Reddit user, it doesn't mean you'll get a share. This whole program is invite-only. Reddit is yet to release an eligibility criteria but we do know that once you are in, stocks will be distributed through a tiered system.

What's Reddit's Financial Status?

After filing for IPO, the company also revealed its financial numbers. In 2023, the company made a total revenue of $804 million, way more than 2022's $666.7 million. However, to everyone's shock, despite a 21% revenue increase, the company suffered a loss of $90.8 million.

Active communities were recorded at 100,000 and total cumulative posts were found to be approximately 1 billion.

That said, this loss might soon be recovered because Reddit made a deal with Alphabet (the parent company of Google) to let the tech giant use Reddit's content for training its AI models for $60 million each year.

The company also reported that on average, it gets 73.1 million active users every day and has received 267.5 million weekly active users in the last 3 months of 2023.

The last official valuation of the company was $10 billion in 2021 during a funding round. While we don't know what valuation the company will be seeking in the share sales, what we do know is that it is planning to sell approximately 10% of its shares.

Why Did Reddit Make Its IPO Available To The Users

The reason behind this move is simple. Reddit wants its users to have some form of ownership over the app. In the filing, they acknowledged the deep sense of ownership that their users feel over the communities they create on Reddit and how this sense of ownership often extends to all of Reddit.

When I browse through the app, I can clearly see how invested the users are in the discussions and communities.

Quite naturally, Reddit wants this sense of ownership to turn into real ownership. The filing ended with a formal invitation for all moderators and active users to buy their shares alongside the investors.

This is the first social media company to file for IPO in years, Snapchat being the last in 2017.

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