Reddit (NYSE: $RDDT) Roars 48%+ on Its First Day of Trading

Reddit (NYSE: $RDDT) is a social media platform where users can share content as links, texts, or posts for others to view and respond to. With around one billion monthly active users (MAU), it has become one of the most popular websites globally for the latest news and trends.

Reddit Stock Soars on First Day of Trading

Reddit was publicly listed via an IPO on Thursday, March 21, 2024, with a debut price of $34 per share on the NYSE under the RDDT ticker.

According to an exclusive report by Reuters on March 17, 2024, the Reddit IPO was oversubscribed around five times. At the time, the report stated that Reddit’s valuation was around $6.5 billion.

RDDT shares soared 48.35% at the close of trading to $50.44 per share, with a market cap of $8.02 billion. Its fully diluted valuation is around $9.5 billion, including stock options and restricted shares, just short of the $10 billion valuation achieved in the 2021 funding round.

The IPO is the fourth largest in 2024 in the US, as the IPO market rebounds after two of the slowest years in the past ten years. Its success will likely lead to more IPOs by tech companies that have been holding off.

How AI Pitch Won Over Investors

Reddit has been around for over 20 years but has never had a profitable year. However, the rise of AI could turn Reddit’s fortunes around, justifying its valuation of over $8 billion.

Large language models are hungry for training data, and Reddit has two decades’ worth of raw data. Companies like OpenAI, the company behind ChatGPT, are willing to pay a premium for data in the increasingly competitive generative AI space.

Some reports indicate that Google paid Reddit $60 million for its data to make its AI sound more human, and Reddit has stated that it has entered into licensing deals worth over $200 million in the next two-three years.

During an interview on Bloomberg TV, Reddit COO Jennifer Wong stated, “Large language models need data.” She pointed to the platform’s 19 years of human-generated content “organized by topic, with moderation and relevance.”According to Wong, that was an area where they foresaw opportunity.

In February 2024, Reddit reported a $90.8 million loss for fiscal 2023. Consequently, the funds from AI companies could make the company profitable.

Reddit’s Two-Year Journey to IPO

Reddit began its IPO journey in 2021 with a confidential filing. At the time, US IPOs set an all-time record of $339 billion. Since then, IPOs have tumbled, only managing $26 billion in 2023. US IPOs have raised around $8.8 billion year to date, a 152% increase compared to the same time last year.

NASDAQ Announced Reddit Options Contracts

According to Reuters, Nasdaq announced Thursday that it would start listing Reddit options contracts on Monday, March 25, 2024.  

The options will be listed on all six of its exchanges, and the announcement might have driven the surge in RDDT shares. While options trading is risky, it is popular on Reddit’s investment community, r/wallstreetbets, which became famous in 2021 after the GameStop short squeeze.

Will Reddit’s Success Revive the IPO Market?

Reddit’s IPO follows in the wake of the success of Astera’s IPO, which could set the tone for IPOs in 2024, including data security firm Rubrik Inc. and healthcare payments firm Wasytar Technologies Inc.  

Since the asset bubble burst in 2021, few tech companies have tried an IPO listing, with the main factor being a mismatch in private-public valuation.

However, if the IPO market roars back to life under the existing market conditions, it will likely hold or improve by the end of 2024. On Thursday, March 21, the NASDAQ Composite achieved a new 52-week high, peaking at a bigger higher than 2021. It signals that tech stocks are as valuable as they have ever been, driven by the rise of AI.

The Reddit IPO topped the biggest tech listings in 2023 in the US, which saw Instacart raise $660 million, Klaviyo Inc. raise $659 million, and Arm Holdings Plc. raise $5.23B. Despite their success, they failed to trigger an IPO rush. However, the market has since warmed up to tech IPOs.

Is Reddit (RDDT) A Buy?

Reddit has a solid strategy to boost monetization by growing awareness of the platform, and encouraging more frequent use, which will entail improving the user experience, improving discovery via machine learning, and modernizing search.

Reddit’s current price translates to an Enterprise Value/Revenue ratio of 8.5, close to Meta’s 9.38 multiple, and above smaller peers Pinterest and Snap, which have 6.87 and 4.17 multiples, respectively. Consequently, the current multiple accurately represents Reddit’s future growth as the AI boom accelerates.

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