Wednesday, April 17, 2024

Here’s how Reddit plans to set the price for its shares when it becomes a public company

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On Monday, Reddit shared that it plans to set the price for its initial public offering (IPO) of shares between $31 and $34 each. This marks Reddit as the first social media company to go public in a while.

This news offers potential investors, including Reddit users, more details to consider if they want to buy stock in the IPO. Reddit’s IPO stands out because it allows more regular investors to take part.

Reddit, along with current shareholders, aims to offer 22 million shares of Class A stock, potentially raising up to $748 million. Reddit disclosed these details in an updated prospectus after officially announcing its IPO last month.

If shares are priced in the middle of the expected range, Reddit could earn about $450 million from the IPO. This money will be used for various purposes like running the company and possibly investing in new technologies or intellectual property.

In total, Reddit hopes to be valued at $6.4 billion through the IPO. This is lower than the $10 billion valuation Reddit aimed for during its last funding round in 2021.

Some investors see Reddit’s IPO as a sign of what’s to come in the broader IPO market, which has been sluggish lately. Wall Street is hoping for a big IPO that could kickstart more deals. This IPO also reflects investors’ interest in buying shares in companies that aren’t profitable, as Reddit has never made a profit in its nearly 19 years of existence.

Despite reporting a loss of $90.8 million in 2023, Reddit’s revenue grew by 21% compared to the previous year. The company is exploring new business avenues, such as selling data to AI companies, to improve its financial situation.

As of the last quarter of 2023, Reddit boasts over 73 million daily active users, up from 52 million in 2021. In a unique move, Reddit is offering some of its most loyal users the chance to become shareholders by reserving 8% of its IPO shares for them. These users had until March 5 to sign up for this opportunity.

However, Reddit acknowledges that allowing its users to participate in the IPO could lead to increased volatility in its stock price. Unlike institutional investors who typically hold onto their shares for longer, individual retail investors might sell quickly, potentially impacting the stock price once it’s public.

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