Reddit shares soared by nearly half in their debut on the market, a vote for confidence in initial public offerings following two years of subdued activities.
Stocks closed Thursday under the ticker RDDT at $50.44, up 48% from the IPO price of $35 per share.
After a difficult two years, the strong debut could signal a revival in investor interest for IPOs. This would pave the way for other companies to consider launching IPOs.
It came a day after shares of Astera Labs, an artificial intelligence infrastructure-related group, surged 72 per cent on the Nasdaq in an offering that raised $713mn.
Stock market gains have boosted hopes for capital raising. The S&P 500 index has reached a new record high. It is up 27 percent since its low in late October.
According to Dealogic this year, companies sold shares worth $7.1bn. This is more than three-times the amount of shares sold at the same time in the previous two years.
Reddit’s initial price of $34 per share, set late Wednesday evening, was the highest of its range. The company received orders for more than 10x the amount offered.
Reddit closed at $9.5bn in value, which is higher than the $6.4bn implied from its IPO. Reddit’s last private fundraising, in 2021, valued the company at $10bn.
Reddit raised $748mn from its share sale, out of which $519mn will go to the company, and the remainder to shareholders.
Around 2mn shares of the company were given to loyal site users and moderators. However, there was no “lock-up”, so they could sell them immediately. Reddit’s users will be closely watched to see how they react. Some in the trading forums of the social media platform have asked for their peers to short stock as a form of protest against the community-based platform becoming public.
Reddit, while viewed as a sign that there is interest in other potential IPOs has its own challenges. For example, meme stock traders may try to short the stock.
Steve Huffman told CNBC, before the debut of Reddit, that “the best Reddit investors are people who already use Reddit”.
Reddit, a San Francisco-based company, has tightened up its previously lax moderation policy in the run-up to its public offering in order to grow its advertising business. This accounted for the majority of its $804mn sales last year. In its 19 years, the company has never posted a profit. According to filings with the regulatory authorities, it posted a loss of $91mn in 2023.
Reddit announced during its roadshow that it plans to diversify revenues by adding ecommerce and selling data to AI companies.
Huffman will earn $17mn from the IPO. He sold 500,000 shares. He will also receive additional awards due to the listing, which values the company at over $5bn. The restricted stock units may be worth up to $21mn.