The self-described front page of the internet’s user-generated discussion forums ended its first day of trading up 48% on Thursday, signaling investor appetite for initial public offerings of promising yet loss-making companies could be returning. Shares of Reddit (RDDT), whose IPO valued the company at $6.4 billion, closed at $34 each on the New York Stock Exchange, up from the $24 to $35 range set in its filing.
Reddit, a platform that has operated since 2005 without turning an annual profit, managed to attract investors by positioning its user-generated content as a valuable resource for training artificial intelligence (AI) programs. This unique selling point, coupled with a data licensing deal with several technology firms, has the potential to generate significant annual revenue, according to a report by Reuters.
Reddit’s unique relationship with its users, who are not just viewers but also active collaborators and creators, is a crucial aspect of its business model. The company monetizes the content created by its users through advertisements. Still, it also sees potential in AI data-licensing deals, such as the one with Google, as a significant source of revenue. This dual revenue model, combined with its strong user base, has attracted investors to the company.
In a nod to its users, Reddit said it set aside 1.76 million shares for sale to eligible moderators and users with no lock-up period. However, Headline Venture Partners partner Kamran Ansari said this could increase price volatility.
Existing shareholders, such as the Newhouse family’s Advance Magazine Publishers Inc. and OpenAI CEO Sam Altman, received windfall returns. The company raised $519 million from the IPO, and Reddit is now worth more than $21 billion.
Before the stock market debut, investors discussed their expectations on Reddit’s “wallstreetbets” forum. There were some negative comments from the community, with some predicting the stock would be shorted.
Tech stocks have been soaring in recent weeks, but whether the rally is sustainable needs to be clarified. This week alone, three public offerings made their debuts, and all have performed well. Data center hardware developer Astera Labs, the maker of technology with use cases in generative AI, was up 72% in its NYSE debut on Wednesday.