The Reddit IPO Countdown: Exploring Prospects and Cautions for Investors

The upcoming Reddit initial public offering (IPO) is among the most awaited market events of 2024, with the social media giant taking significant strides toward going public. In late February, the company completed its IPO filings, setting the share price range between $31 and $34. This pricing indicates a projected valuation of approximately $6.5 billion, placing the Reddit IPO among the potential record-breaking listings in the U.S.

Founded in 2005 by University of Virginia roommates Steve Huffman and Alexis Ohanian, along with tech prodigy Aaron Swartz, Reddit quickly evolved from a startup to a global platform. It was acquired by Condé Nast Publications in 2006 and became independent in 2011, continuing on a dramatic growth trajectory.

Now branding itself as a 'community of communities' fueled by diverse interests, Reddit revealed in its Q4 2023 report that it had reached an average of 73 million daily and 267 million weekly active unique users.

The intention to go public is stated as an effort to enhance Reddit's mission, strengthen the company, and deliver tangible advantages to its user community. Trading under the ticker symbol RDDT, the IPO is set to launch on the New York Stock Exchange shortly.

Distinctive to the Reddit IPO is the opportunity given to employees to sell their shares during the offering, diverging from the commonplace 'lockup period' which restricts insiders from offloading their shares soon after the IPO.

Moreover, Reddit is reserving shares to support community programs and giving certain users the chance to acquire IPO shares at the offer price through a directed share program.

Investor Considerations for the Reddit IPO

With backing from prominent tech figures like Sam Altman, who has significant investments and influence within Reddit, and early support from Peter Thiel and Tencent Holdings, the company has attracted interest from notable corners. However, analysts recommend caution to retail investors eyeing the Reddit IPO.

While IPOs often surge on the debut day, historical data from Trivariate Research indicates underperforming average returns in the first year post-IPO. Specifically, IPO stocks have tended to trail behind their industry averages by 30% over the three years following their market entry.

David Trainer of New Constructs goes further, criticizing the IPO's valuation and prospects. He questions the likelihood of Reddit expanding its user base to the degree implied by the valuation, advising investors to consider other opportunities.

While some observers suggest the allocation of shares to users could dampen initial demand and soften the first-day 'pop,' it's essential to recognize that investment outcomes can vary widely.

Ultimately, the decision to invest in the Reddit IPO will depend on one's own investment objectives and risk appetite. If you choose to participate, it's advisable to limit your stake to an amount you're prepared to risk.

Reddit, IPO, Investment