In a development that’s been longer overdue and confidentially gestating since December 2021, Reddit has “drawn up detailed plans” to launch its initial public offering (IPO).
According to Reuters, the impending listing has been scheduled for this March, and would effectively mark the first time a major social media player has attempted to go public since Pinterest back in 2019.
Sources indicate the social news aggregation platform and mass discussion board’s public filing will occur in late February, before the roadshow — translation: sales pitch tour to potential investors by the underwriting firm — kicks off in early March, wrapping things up with a hard launch later that month.
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Approximately 10% of Reddit’s privately held shares will reportedly be allocated to the IPO. Bloomberg reports the targeted valuation will hover around $5 billion… which is surprisingly modest.
For context, almost three years ago, the self-styled “front page of the internet” crossed the $10 billion private valuation threshold after securing F series funding from a consortium led by Fidelity Investments.
Ordinarily, this would be considered quite a success. But as noted by veteran publishing professional and media pundit Simon Owens, the fact that it needed to raise capital at this stage of its lifespan points to a glaring weakness: actually making money.
“Reddit is 16 years old [now 19] — I can’t imagine why it would need $700 million in additional investments this late in the game,” wrote Owens.
“It’s generating $100 million in advertising per quarter — less than The New York Times. It is really struggling to monetise its huge audience.”
Keep in mind that the aforementioned $100 million represented considerable growth too. Surpassing the nine-figure benchmark in quarterly revenue for the first time in Q2, 2021; it was an overall increase of 192% from the same period back in 2020.
“We’ve grown up in the shadow of Facebook and Google,” explained Reddit Co-Founder & CEO Steve Huffman.
“And pretty much every dollar we make we’ve had to fight for.”
In 2023, it managed to generate a little over $800 million in advertising revenue — up more than 20% from the year prior, as per The Information (via Reuters).
Competition in a landscape where digital giants like Facebook, Google, Twitter, Snap Inc, and Pinterest roam, however, is just one element of a larger problem.
There has long been an unspoken agreement between the people behind the scenes and users that advertising — i.e. the very factor driving revenue for the majority of these sites — would be kept to a minimum.
Around the time of its F series, the platform had recently scrapped programmatic ads entirely, thereby limiting its funnel. Furthermore, it’s no secret that the average click-through rate for ads on Reddit is noticeably lower compared to the likes of Facebook.
According to an experiment conducted by Social Media Lab, the former obtained a 0.26% click-through rate (CTR) whereas the latter obtained a 0.90% CTR. Meaning Reddit Ads require far more impressions just to get a click (its saving grace is, of course, a lower cost per click).
To supplement this, premium site access priced at $5.99 per month is also available. Though at the time of this writing, the front page of the internet hasn’t ever been profitable.
Rather controversially, there are also plans to begin charging for access to Reddit’s application programming interface (API), which is leveraged by technology companies to train large-language models used in artificial intelligence.
The true value of Reddit needn’t be justified at this point in its existence. Anyone still unclear about the “intangible” power of community can simply ask certain Wall Street institutions how defeat tastes.
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Whether this can be adequately translated into dollars and cents when the Reddit IPO is officially launched is another matter entirely. Especially in the face of rising interest rates, which are cratering company valuations and weighing on asset prices.
“The success of the IPO is contingent in part on the state of the IPO market, which has struggled in recent years,” writes Lakshmi Varanasi of Business Insider.
“Investors are hoping that 2024 will be a more active year for the IPO market. IPOs began showing signs of life again last year as profitable tech startups like Instacart and Klaviyo filed to go public… Reddit’s current target shows that those days of sky-high valuations are gone, for now.”
Editor’s Note: All $$$ are denominated in USD.
