Shares of Reddit rose 48 percent on Thursday in their first day of trading, in a sign of investor enthusiasm that set the stage for more tech companies to hit the stock market this year.
Shares of the social media company began trading on the New York Stock Exchange at $47 after trading at $34 on Wednesday in its initial public offering. The stock continued to rise before closing at $50.44. Pop put Reddit's market capitalization at about $9.5 billion, slightly below the $10 billion it was valued at in private markets three years ago.
The listing is a milestone in a long journey 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 pressure washing to Labrador retrievers. Over the years, the company struggled to solve many of the problems that larger social media companies face, such as how to moderate speech and make money.
“The process of becoming a public company has made us much better,” Reddit CEO Steve Huffman said in an interview Thursday morning. “We're shipping better products, faster.”
Reddit's performance indicated that public markets have an appetite for more technology offerings after public listings failed amid rising interest rates and economic uncertainty. Just over 100 companies went public in the United States last year, about a quarter of those that went 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 a success. The company is growing but is not profitable and has faced questions about the strength of its advertising and data licensing businesses.
On Wednesday, Astera Labs, an artificial intelligence company, rose 72 percent on its first day of trading on the stock market, which, combined with the debut of Reddit, 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 technology companies considering a bid is whether they should temper their valuation expectations. Many private technology companies that raised money during a euphoric investment environment have since done so at lower valuations.
Against that backdrop, some larger, well-funded tech companies, such as payments processing company Stripe, appear to be in no rush to go public. San Francisco-based Stripe said last month which had bought shares from its employees, allowing them to partially withdraw their stake in the company without an initial public offering
Reddit's first day of trading was also a test to see if it would become a “meme stock,” which is when a company gains a herd-like following on social media and its actions can be promoted or ridiculed for profit. financial of his followers. One subreddit, WallStreetBets, has developed a powerful role in financial markets as a promoter of meme stocks, serving as a place where traders come together, exchange tips and talk.
In its public offering, Reddit offered up to 8 percent of its shares to Redditors, people who regularly use the site, an unusual move to reward some of its most loyal users. On Thursday, WallStreetBets commentators actively discussed Reddit Actions, comparing how many shares they had, sharing their buying and selling plans, and endorsing or endorsing the stocks in frivolous, sometimes profane, terms.
Typically, large financial institutions can participate in an initial public offering the night before the company is listed. Those institutions stand to benefit the most from selling on the next-day “pop” of interest from retail investors.
“It's a way to create loyalty,” said Jay Ritter, a finance professor at the University of Florida. “The company says, 'Look, we want people who have been successful to get some benefits.'”
That also creates risks. Shares of Robinhood, a stock trading and investing app that decided to sell up to a third of its offering to retail traders through its own app in its own IPO, closed down 8 percent on its first day of trading. when they went public in 2021.
One of the biggest winners from Reddit's public offering was the Newhouse family, the media dynasty that controls Condé Nast through its holding company, Advance Publications. The Newhouses were set to make a windfall of about $1.4 billion from the roughly 30 percent stake they own in Reddit. Other main shareholders They include Tencent, the Chinese internet company, and Sam Altman, CEO of OpenAI.
“We did it, mom,” Alexis Ohanian, one of the site's co-founders, said on social media. mail Thursday. Ohanian, who was previously chairman of Reddit's board of directors, is no longer the largest shareholder or has an operational role in the company. He and Huffman parted ways after differences over how discriminatory the speech should be. moderate in the place.
From the floor of the New York Stock Exchange on Thursday, Huffman pointed to the company's improved cadence of adding new features over the past year and improving tools for moderators, the thousands of volunteer users who oversee the site's subreddits.
Those changes (and the specter of more to come) remain a source of tension for many of Reddit's more than 70 million daily users. Many have worried about how the pressures of quarterly reporting and demands from Wall Street could affect the site's operation, saying that profits on products could hurt what Reddit did, Reddit.
“It's a natural feeling and we share it,” Huffman said in Thursday's interview. “But we love Reddit; That is the emotion we all have in common. And it's important for us to treat Reddit with respect as we move forward.”
And he added: “But there is a lot I can say, now we have to prove it.”