Thursday, April 25

Reddit files to be made public, in first social media IPO in years

Reddit, the community discussion forum site, filed for an IPO on Thursday, paving the way to become the first major social media company to debut publicly in years and a test for private companies after an initial drought. offerings.

In a offering prospectus, Reddit disclosed its financial performance in preparation to sell shares to investors. The San Francisco-based company said its revenue rose more than 20 percent as its losses narrowed last year. He added that it has 73 million daily users and more than 100,000 active communities.

The prospectus kicks off an IPO process, with the 18-year-old company set to meet potential investors to whet their appetite for buying its shares. Reddit could go public on the New York Stock Exchange in a few weeks under the ticker symbol RDDT. The company was valued at more than $10 billion in a private financing completed in 2021.

Reddit is the latest in a previous generation of social media companies to target the stock market, following Facebook’s high-profile offering in 2012, Twitter’s in 2013, and Snap’s in 2017. In the years since, the social media industry has changed, facing increased scrutiny over misinformation, hate speech, and other effects. . Some companies have changed direction; Facebook was renamed Meta and Twitter was bought by Elon Musk, who took the company private in 2022 and renamed it X.

Reddit’s move is also highly anticipated after a lull in IPOs. Only 108 companies went public in the United States last year, about a quarter of the number launching in 2021, according to data compiled by Renaissance Capital. Some of the biggest tech deals last year were Arm, a chip designer, and Instacart, a grocery delivery company.

“We are going public to advance our mission and become a stronger company,” Steve Huffman, Reddit’s chief executive, said in a founder’s letter included in the prospectus. “We hope the IPO will also bring significant benefits to our community. “Our users have a deep sense of belonging in the communities they create on Reddit.”

Mr. Huffman added that the company wanted “that sense of ownership to be reflected in true ownership – that our users are our owners” and that “becoming a public company makes that possible.” Reddit said it would reserve a portion of its shares at the IPO price for 75,000 of the company’s most prolific users if they wanted to buy them.

In its prospectus, Reddit said revenue in 2023 was $804 million, up about 21% from $666 million a year earlier. The company lost $90 million in 2023, compared to a loss of $158 million the year before, according to the prospectus.

Its main shareholders include Advance Magazine Publishers, Tencent Cloud Europe, Vy Capital, Fidelity Management and Sam Altman, former Reddit board member and CEO of OpenAI.

Reddit’s path to the public markets has been long and rocky. Founded in a University of Virginia dorm in 2005 by Mr. Huffman and Alexis Ohanian, the site began as a destination for anonymous users to gather and discuss everything from popular TV shows to guitars, including makeup and high-pressure cleaners.

The site was unique in that it focused largely on tight-knit, mostly anonymous communities, all moderated by volunteers who ran their own forums, or “subreddits,” based on rules they had themselves established. He became known for “AMAs”, otherwise known as “ask me anything” sessions, sometimes with public figures like former President Barack Obama, Microsoft’s Bill Gates and actor Nicolas Cage .

The company has raised hundreds of millions of dollars in funding over the years, including $250 million and more than $410 million in two funding rounds in 2021. Investors include Fidelity Investments, Andreessen Horowitz, Sequoia Capital and Tencent Holdings. Like other early social networking efforts, Reddit initially avoided offering advertising and making money. Instead, he focused on forms of revenue that came from community ideas, such as a user-generated e-commerce system and rewards that users could purchase for themselves. These ideas are still relevant today.

Reddit eventually adopted advertising based on its topical communities. Brands like Laneige, for example, have targeted their ads on a forum called Makeup Addiction, one of the most active subreddits, where users discuss cosmetic products and how to apply them.

The site has also developed an emerging data licensing business based on its massive corpus of conversation data, which has become increasingly important amid the frenzy around artificial intelligence. AI models are trained on quantities of such data so that they can become more powerful. On Thursday, Reddit announced a licensing deal with Google, which used Reddit data to train and build its AI systems.

“We hope that our data advantage and intellectual property will continue to be a key element in training” future AI models, Mr. Huffman said in the letter. The company has entered into a number of undisclosed licensing deals to use its data and hopes to earn more than $203 million over the next three years from those contracts, according to the filing.

The site has had its share of difficulties. He faced controversy after controversy over his refusal to moderate communities during his early years, including his role in spreading misinformation during the 2013 Boston Marathon bombing and the hosting racist and misogynistic content in some of its smaller subreddits. Last year, Reddit faced a user revolt after changing some of its rules and blocking third-party developers from using the site’s content without paying for it.

Reddit has reversed its stance on moderation and has updated and more strictly enforced its policies in recent years, making it more attractive for marketers to place advertising on the site.

The company also had a revolving door of executives in its first decade, led by four CEOs before Mr. Huffman returned to the helm in 2015.

Reddit has warned potential investors that it faces potential challenges and risks as a public company, including the rise of large language models, the underlying AI systems that could potentially aggregate and synthesize the content of the site and allow users to view Reddit without visiting the site or seeing any advertising.

The company could also struggle to court brands in a digital advertising market dominated by Meta and Google.

“Reddit could face a significant challenge in growing its advertising business, given the gap between its platform’s capabilities and those that are best-in-class,” said Eric Seufert, an independent mobile analyst who closely monitors social media companies and advertising.

The company also warned that it relies heavily on its community to moderate the platform, and that future revolts or departures could harm the site.

“We have many opportunities and much to do,” Mr. Huffman said.