8 months ago
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Shares of social forum giant Reddit opened today at nearly $47 per share, then quickly soared to around $55, up about 60% in heavy volume from its IPO price of $34 per share. The company had indicated a target range of $31 to $34 per share in the run-up to its public-market debut, eventually settling on the top-end of that interval. The peak share price as of the writing of this post was $57.80, though prices are, at the moment, a couple of dollars cooler, and a few percentage points down, from that price.
With $804.0 million in 2023 revenue, and still unprofitable (with net losses of more than $90 million last year), Reddit may appear to be trading on the high end of its revenue multiple compared to the nearest comparable social media companies like Snap. But it has a significant AI story to tell that could excite investors about its future. Reddit sold $203 million worth of contracts to AI companies for access to its data earlier this year. And Reddit is a treasure trove of exactly the kind of training data that always-hungry, large language model AI companies need, which bodes well for this to become a serious growth part of its future business.
It’s worth noting that the FTC has opened an inquiry into Reddit’s plan to license its user data to train AI models. If investor interest is sparked due to the company’s AI strategy, it will be interesting to see how the stock continues to perform as that probe continues to unfold.
Another win for tech
Reddit’s strong IPO debut following directly in the wake of Astera’s blockbuster public offering could shake up the current market dynamics and narrative surrounding going public. In the wake of a compression in tech valuations since the implosion of the 2021-era asset bubble, few tech companies have tested public markets. In part this is due to private-public valuation mismatches, among other factors.
But with the first two tech IPOs of the year both performing well, there’s less weight in the argument that waiting is the best course of action for healthy private-market tech companies. With interest rate cuts anticipated in the back-half of the year, some companies may hold off a little longer, but Astera and Reddit are indication that the waters are warm for tech shops that can show growth, perhaps profit on a quarterly if not yearly basis, and have something to say about AI in their prospectus.
Early trading results do not always augur a trouble-free public market life, however. Many 2021-era tech IPOs have lost value since their early, hot debuts. Still, charts that point up are more bullish than charts that do not. If the double-header of IPO winners this week does shake loose more offerings from tech companies on the sidelines – both well-known IPO candidates like Turo that have filed publicly, those like Circle that have filed privately, and the companies that are simply big enough and old enough to do so – venture investors that did not put capital into either Astera or Reddit may have cause to sing their praises.
Will the IPO window genuinely open?
If the IPO does open under current market conditions, there’s reason to expect the situation to hold, or even improve as the year continues. The Nasdaq Composite reached a new 52 week high today, with the index peaking at a higher maximum than it did back in 2021. That means that tech shares are, by one metric, as valuable as they have ever been.
Secondaries investors recently told TechCrunch that they weren’t sure that a successful Reddit IPO would be enough to bring life back into the IPO market in 2024. But with Astera Lab’s impressive performance yesterday and Reddit’s strong showing today, maybe there will be more life in the IPO market this year than many thought.
One can hope.
