0 12 min 1 mth

A laptop screen shows the site Reddit and the page for Wall Street Bets.
The subreddit r/wallstreetbets has thoughts on Reddit’s IPO. | Brent Lewin/Bloomberg via Getty Images

Reddit could become the next meme stock — or flop.

Reddit, the launchpad for many meme stocks, could now become one: The social media giant makes its debut on Wall Street Thursday in one of the most highly anticipated initial public offerings of the year.

The nearly 20-year-old company has reportedly raised $748 million in its IPO, putting its valuation at about $6.4 billion — the upper end of what the company had hoped to fetch. It’s the first time that a major social media company has gone public since Snap (i.e., Snapchat) in 2017.

It is selling approximately 22 million shares priced at $34 each under the ticker symbol “RDDT.” The company reserved about 1.76 million shares for top Reddit users, people who have taken a significant number of “moderator actions” or who have high “karma” scores, a measure of community engagement with their posts. They had the option to buy in at that initial price early and then sell as soon as the IPO happens.

That perk is unavailable to most investors, who usually have to hold stock for a mandatory six-month period after an IPO. Reddit is attempting to curry favor with a user base that hasn’t taken kindly to the company’s past efforts to monetize the site enough to turn a profit.

Reddit argued that there were many reasons for people to buy in, according to a prospectus released ahead of the IPO. While the company isn’t yet profitable, revenue grew by 21 percent to $804 million and losses declined 43 percent to $90.8 million in 2023. It’s hoping to offer more advertisers access to its 73 million daily active users, many of whom come to Reddit looking for product recommendations. Advertisers could then target users based on their interests. The company hopes that microtargeting will allow it to continue growing its revenue, even if digital ad spending remains down.

Reddit also recently signed a data licensing deal with Google, reportedly valued at about $60 million a year, to help train the search engine’s artificial intelligence models on the conversations happening on Reddit.

The AI boom is a boost to Reddit’s debut on Wall Street — but its plans for profitability risk angering its users by undermining the very reasons for the site’s success. Reddit has thrived as a relatively egalitarian, all-in-one online forum. In contrast to Facebook or Twitter, most users remain anonymous and the site has historically had a relaxed attitude toward content moderation. But recent pivots ahead of the IPO toward a more investor-focused strategy, such as cracking down on third-party apps, has already led to significant backlash from the user base.

Now Reddit has to convince its users that they stand to benefit from any of the features that might make the company attractive to investors. If it can’t, it risks another mutiny.

“I think there will be rough waters to navigate early on, but that seems normal for most companies, especially those with boisterous customers,” said Kyle Stanford, lead venture capital analyst at PitchBook. “This is a natural progression.”

What the IPO means for Reddit as a company

Reddit CEO Steve Huffman said last year that it was “time we grow up and behave like an adult company.”

Reddit is one of the last major Web 2.0 social networks to go public: Meta (then Facebook) went public in 2012, X (then Twitter) in 2013 before Elon Musk took it private again, Tinder parent company Match in 2015, and Pinterest in 2019.

Going public means that Reddit will have new fiduciary obligations to its shareholders, which demand that the company try to maximize its profits. The company already took additional steps to try to further monetize the platform ahead of its IPO.

The new Google data licensing deal is a big one, especially given that licensing has only been a small share of Reddit’s revenue up until this point. The advent of AI large language models like Google Gemini has opened up new opportunities in licensing. While AI search crawlers have been scraping data from websites including Reddit to develop their models without permission from those sites, lawsuits have recently put that practice under threat, so Google has been eager to secure licensing deals with major publishers.

If Reddit were going public right now as a standalone social media and advertising business, Stanford said it would be a “tough market to IPO in, and we should assume the price range would be lower if that was the case.”

“AI is a big boost to the IPO, and probably a reason the company is choosing now to IPO,” he said, adding that the company’s hope is that it will “boost its prospects and boost the interest from investors that it can continue its revenue growth and move toward profitability.”

The Federal Trade Commission, however, has opened an inquiry into the Google deal. Though Reddit says it has not engaged in any anticompetitive practices, it acknowledged in an updated investor prospectus that the probe could lead to “substantial costs” and “require us to change our policies or practices, divert management and other resources from our business, or otherwise adversely impact our business, results of operations, financial condition, and prospects.”

Last year, Reddit also started charging third-party developers to access its API, a tool that allows the social media network to share information with other software. It generated a huge backlash among Redditors, with thousands of volunteer moderators shutting down their subreddits in protest for days or longer. Popular third-party apps that have a unique user interface to browse Reddit on mobile — like Narwhal 2 or Infinity — used to be free, but now have to charge for subscriptions as a result of the new API restrictions. Other third-party developers have decided to just shut down their apps.

But Huffman never budged. He told NPR at the time that Reddit had been “subsidizing other [businesses] for free for a long time. We’re stopping that. That is not a negotiable point.”

Reddit has also begun to take steps to attract more advertisers. That has meant toughening content moderation. And it has promised further investment in its contextual and interest-based ad targeting technology introduced last year.

“If the data licensing is able to grow significantly and reduce the pressure on increasing advertising, that is probably the best option,” Stanford said.

How Redditors are reacting

All eyes were on the subreddit r/wallstreetbets ahead of its parent site’s IPO, providing an early window into how the user base and investors are responding.

The subreddit has previously made and ruined fortunes, temporarily driving up the price of stock in down-and-out companies like GameStop, the movie theater chain AMC, and Y2K smartphone maker BlackBerry.

In some of those cases, Redditors’ goal was to orchestrate a short squeeze — forcing institutional investors who were betting against the stock to buy it back at a higher price to cover their losses. (They also just thought it was funny.) For example, r/wallstreetbets (with a later endorsement from Elon Musk) propelled the price of GameStop stock from under $5 a share in January 2021 to as high as $500 by the end of the month. The brokerage platform Robinhood eventually made the controversial decision to temporarily restrict trading of the stock, citing market volatility and regulatory requirements.

Reddit itself could be the next stock to attain meme status.

“I think the Reddit stock has the right ingredients to be a meme stock,” said Jonathan Brogaard, a finance professor at the University of Utah who has studied meme stocks. “Specifically, it has the attention of lots of retail investors and its price will likely be volatile, just based on the fact that it is a new listing. These seem to be the two necessary ingredients for a security to become a meme stock.”

That said, as with any meme stock, it’s hard to predict how the market might behave. “Even if the price is clearly wrong, the saying, ‘The market can remain irrational longer than you can remain solvent,’ still applies,” Brogaard said.

Recently, there’s been chatter about the Reddit IPO on r/wallstreetbets, almost none of it positive. Some choice examples:

When I reached out to the moderators of r/wallstreetbets to ask if they were buying into the IPO, they responded with characteristic cheek: by making fun of my username. Without doxxing myself, I thought my username was a clever allusion to one of my favorite books, The Hitchhiker’s Guide to the Galaxy; the mods derided it as “one of them high-brow classic lit references about your destructive nature as a journalist.”

My hurt feelings aside, this is part of what has always made Reddit so compelling.

Unlike X, where blue checks with verified identities have always driven the conversation, Reddit has a flatter structure where communities form around niche topics, giving way to an unruliness that doesn’t respect anyone because of their title (especially because many people go by pseudonyms.) Rather, earning upvotes on Reddit is about having something knowledgeable, interesting, or entertaining to add.

This is also what has long made Reddit a more difficult sell to advertisers than apps like Facebook, where users generally go by their own name and disclose a lot of personal information by design. Its user-driven content model doesn’t give advertisers much control over where their ads are placed, which could be right next to controversial, inappropriate, or even illegal content with which they don’t want to be associated.

Reddit has historically had no shortage of such content, even if it was later banned: take r/thefappening, where photos of naked celebrities stolen from their private iCloud accounts were posted, or r/thedonald, a MAGA subreddit that often violated the social network’s policies on hate speech.

As it goes public, the company’s challenge is striking a balance between preserving what has always allowed communities to flourish on the platform with the pursuit of profitability.

“It will be tough to keep users and investors happy at the same time,” Stanford said. “Finding ways to continue incentivizing users to participate on Reddit without adding barriers specifically to increase revenue will be the path forward.”

Update, March 21, 10:55 am: This story was originally published on March 20 and has been updated to include new information about how much Reddit raised in its IPO.

Clarification, March 21, 6:40 pm ET: This story has been updated to clarify Robinhood’s response to the trading frenzy around GameStop stock.

Leave a Reply

Your email address will not be published. Required fields are marked *