Shares of Reddit soared 48% on Thursday in its first day of trading, in a sign of investor enthusiasm that has set the stage for more tech companies to go public this year.
Shares of the social networking company started trading on the New York Stock Exchange at $47 after being priced at $34 on Wednesday in the initial public offering. The stock continued to rise before closing at $50.44. Pop put Reddit’s market cap at about $9.5 billion, slightly below the $10 billion it was valued at in the private markets three years ago.
The listing marks a milestone in a long road for Reddit, which was founded in 2005 in San Francisco. The site is best known for its message boards, where users can gather in forums known as subreddits to research and discuss everything from parenting to power washing to Labrador retrievers. Over the years, the company has struggled with many of the issues that larger social media companies face, such as how to moderate discourse and monetize it.
“The process of going public has made us a lot better,” Reddit CEO Steve Huffman said in an interview Thursday morning. “We ship better products, faster.”
Reddit’s performance signaled that public markets have an appetite for more tech offerings after going public amid rising interest rates and economic uncertainty. Just over 100 companies went public in the United States last year, about a quarter of the number expected to go public in 2021, according to data compiled by Renaissance Capital, which manages IPO-focused exchange-traded funds.
Reddit’s IPO was not guaranteed to be successful. The company is growing but unprofitable and has faced questions about the strength of its advertising and data licensing businesses.
On Wednesday, Astera Labs, an artificial intelligence company, soared 72% in its first day of trading, which combined with Reddit’s debut could encourage other private tech companies to go public. These include Rubrik, a cloud data management company. SeatGeek, a ticketing provider. and ServiceTitan, a home services software company.
A key question for tech companies considering an offering is whether they should temper their valuation expectations. Many private tech companies that raised money in a euphoric investment environment have since raised money at lower valuations.
Given this backdrop, some larger, well-funded technology companies, such as payment processor Stripe, appear to be in no rush to go public. San Francisco-based Stripe said last month it had bought back shares from its employees, allowing them to partially redeem their stake in the company without an IPO
Reddit’s first day of trading was also a test of whether it would become a “stock meme,” which is when a company gains a herd-like following on social media and its stock can be promoted or circumvented for the financial benefit of followers. her. One subreddit, WallStreetBets, has developed a strong role in the financial markets as a stock meme promoter, serving as a place where traders come together, trade tips and chat.
In its public offering, Reddit offered up to 8 percent of its shares to Redditors, the people who regularly use the site, an unusual move to reward some of its most loyal users. On Thursday, commentators at WallStreetBets actively discussed Reddit stock, comparing how many shares they owned, sharing their plans for buying and selling, and arguing for or against the stock in specious, sometimes profane terms.
Typically, large financial institutions can purchase an initial public offering the night before the company lists. These institutions are the ones that can benefit the most from their sales in the “pop” of interest from retail investors the next day.
“It’s a way of building trust,” said Jay Ritter, an economics professor at the University of Florida. “The company is saying, ‘Look, we want the people who succeeded to have some benefits.’
This also creates risks. Shares in Robinhood, a stock-broking and trading app that decided to sell up to a third of its offering to retail traders through its own app in its own IPO, closed up 8 percent in first-day trading when it went public in 2021.
One of the biggest winners of Reddit’s IPO was the Newhouse family, the media dynasty that controls Condé Nast through its holding company, Advance Publications. The Newhouses stood to reap a windfall of about $1.4 billion from their roughly 30% stake in Reddit. Other major shareholders include Tencent, the Chinese internet company, and Sam Altman, the CEO of OpenAI.
“We did it, mom,” Alexis Ohanian, one of the site’s co-founders, said on social media. Position on Thursday. Mr. Ohanian, who previously served as chairman of Reddit’s board, is no longer a major shareholder, nor does he have an operational role in the company. He and Mr. Huffman split after differences over how discriminatory speech should be mediated on the site.
From the floor of the New York Stock Exchange on Thursday, Mr. Huffman pointed to the company’s improved pace of adding new features over the past year and improving tools for moderators, the thousands of volunteer users who oversee the site’s subreddits.
These changes — and the specter of more to come — are still a source of tension for many of Reddit’s more than 70 million daily users. Many have worried about how the pressures of quarterly reports and Wall Street demands could affect the site’s operation, saying that profiting from the products could hurt what made Reddit, Reddit.
“It’s a natural feeling and we share it,” Mr. Huffman said in Thursday’s interview. “But we love Reddit — that’s the common sentiment we all have. And it’s important for us to treat Reddit with respect as we move forward.”
He added, “But there’s so much I can do – now we have to show it.”
