Reddit priced its initial public offering (IPO) at $34 per share, hitting the upper end of its initially expected price range and achieving a target valuation of $6.4 billion. According to Reddit user r/wallstreetbets, the company should enjoy it while it lasts.
Reddit’s shares will debut on the New York Stock Exchange on Thursday under the ticker RDDT, marking the first major social media IPO since Pinterest in 2019. Of the 22 million shares up for grabs, approximately 6.7 million will be sold by shareholders, with Reddit receiving no proceeds from the sale. The rest will be sold by the company.
At $34 per share, that means Reddit could raise about $519.4 million from the sale of its stock — assuming each share is sold at that price. The offering is set to close on Monday.
Reddit finally files for IPO, giving Reddit users first dibs on buying shares
There are some impressive numbers in there, some of the best on Reddit. Yet Reddit’s $6.4 billion valuation is still down from three years ago. In late 2021, when the company initially began its efforts to go public, it was valued at as much as $15 billion. Such plans were subsequently delayed due to issues including market volatility and high interest rates, and the social media company eventually filed for an IPO last month.
r/wallstreetbets Betting on Reddit
Photo credit: Mateusz Slodkowski / SOPA Images / LightRocket via Getty Images
While Reddit’s IPO pricing may look promising, the irreverent denizens of the stock trading subreddit r/wallstreetbets are largely skeptical. One popular comment derisively called it a “pump and dump” scheme, a fraudulent tactic that artificially inflates a stock price and then sells it before it falls. As of this writing, there are over 2,300 votes in favor.
Others expressed eagerness to short Reddit stock. Short selling occurs when an investor borrows shares from the owner, sells them to a third party, and then buys them back and returns them. When people believe a stock’s price will fall between selling the stock and buying back the stock, they short the stock, thereby retaining the difference in value.
“Can’t wait to shorten this cesspool after the initial pump,” u/AngerFurnace commented.
This concern seems legitimate given Reddit’s history. Reddit’s IPO filing last month said the company had “incurred a net loss since going public.” [its] “, with a cumulative deficit of $716.6 million by the end of 2023. The company has never turned a profit in its 18 years of existence, and many Reddit users expect its stock price to fall soon after the initial excitement fades.
“Smart people wouldn’t buy stock in a company that has never made any money,” u/InsideOutPoptart wrote. “This is a plan by the owners to cash out and get out. Stay away.”
u/Str_ posted: “Millions of young/new investors are about to learn a valuable lesson.”
Even so, some bold investors appear willing to bet despite the odds being stacked against them.
“Tesla tested negative [earnings per share] u/ekrekel countered: “Amazon did very little in its first 10 years.”
Selling ad space and user-generated data directly to businesses is very different from selling physical products to the masses. This doesn’t seem to faze Reddit IPO believers, although some bought the stock mostly as a joke.
“Warren Buffett said to invest in companies you know, use and love,” said FineJuggernaut3295. “I’m long RDDT.”
“I picked up $5,000 worth of shit and thought I would be disgusted, but I have to admit I saw [r/wallstreetbets] so pessimistic [i.e. pessimistic] Makes me feel like this would be a nice little payday,” u/hallidev wrote.
Can r/wallstreetbets send Reddit stock to the moon?
Photo credit: Tim Goode/PA Images via Getty Images
r/wallstreetbets made headlines in 2021 when users collectively initiated a short squeeze on GameStop stock, buying up shares in the video game retailer and driving up its stock price. This forced hedge fund Melvin Capital, which had been trying to short GameStop stock, to sell its shares at such a high price to minimize losses before the stock price climbed further.
The short squeeze caused Melvin Capital to lose 53% in January of that year, and the investment firm lost $6.8 billion in that month alone. The multi-billion dollar hedge fund closed just a few months later.
Therefore, the power of r/wallstreetbets should not be underestimated. The Reddit subreddit was even directly mentioned as a risk in the Reddit IPO, saying its users could cause “extreme volatility” in stock market prices and trading volumes.
Despite countless jokes and comments, no clear coordinated plan to manipulate Reddit stock has emerged on r/wallstreetbets, although that may soon change. Either way, Reddit’s stock market debut will be interesting.
Reddit has not had a good relationship with its users and moderators lately. The company was widely criticized last year after it began charging developers to access its application programming interface (API), leading to the shutdown of many popular third-party apps. Moderators closed many Reddit subreddits in protest, only to be forced to reopen them after Reddit threatened volunteers with removal. Unsurprisingly, moderators’ attitude toward Reddit is now lukewarm at best.
The company has been trying to monetize through a series of unpopular changes, from not allowing users to opt out of ad personalization to selling user-generated data to train artificial intelligence models. This approach likely resulted in Reddit losing just $90.8 million last year, compared with $158.6 million the year before.
Unfortunately, it appears Reddit has paid the goodwill difference and may continue to pay it.
