After many years of preparation, popular social network Reddit has filed for an initial public offering (IPO) with the U.S. Securities and Exchange Commission (SEC). The company plans to list its shares on the New York Stock Exchange under the ticker RDDT, marking the first major IPO of a technology company this year and the first for a major social network since Pinterest’s 2019 debut.
Reddit reported sales of $804 million in 2023, a 20% increase from $666.7 million from the previous year. Revenue mainly comes from online ad sales on the site and mobile app. Despite its revenue growth, Reddit stated that it has been operating at a net loss since its creation in 2005. The net loss was $90.8 million in 2023, down from a loss of $158.6 million in 2022. As one of the most visited sites in the U.S., Reddit is striving to create a competitive online advertising business similar to tech giants like Meta and Alphabet.
With over 100,000 communities, Reddit attracts 73 million daily active users (DAUq) and 267 million weekly active users. In the fourth quarter of 2023, the average revenue per user (ARPU) in the U.S. was $5.51, down from $5.92 the previous year. In direct contrast, Reddit’s global ARPU was $3.42, a slight 2% decrease from $3.49 in 2022. By 2027, Reddit estimates the total accessible advertising market value, excluding China and Russia, to reach $1.4 trillion — up from the current $1 trillion.
To enhance its advertising revenue, Reddit plans to leverage artificial intelligence and create new revenue channels. The company is also exploring ways to monetize data licensing to third parties. Google will use Reddit posts to train its AI as part of this initiative. Last year, Reddit made its API access paid, thus blocking third-party client apps and sparking community protests.
Reddit plans to issue three classes of shares. Class A shares will have one vote per share, Class B will hold ten votes per share, and Class C will have no voting rights. Non-Reddit moderators will be allowed to participate in the IPO through direct share sales, and it is expected that retail investors may hold a significant portion, thereby potentially causing volatility in Class A share prices.
Concerning risks, Reddit admitted that unique visitor numbers can fluctuate, for instance, during the pandemic, user growth slowed, and numbers fell when the pandemic ended. Spikes in user numbers are often tied to global events and major game releases. For instance, user numbers rose with the start of the Ukraine crisis and the release of Elden Ring. As of December 31, 2023, Reddit employed 2,013 people, up from 1,942 the previous year. Reddit has attracted about $1.3 billion in funding at a valuation of $10 billion. Reddit was acquired by publisher Condé Nast in 2006 and spun off into a standalone unit from parent company Advance Magazine Publishers in 2011. Currently, Advance retains 34% of the voting shares. Tencent and OpenAI leader Sam Altman are among the other notable shareholders.
