Reddit, a social media giant, is looking to gain a better valuation ahead of its IPO launch. It will happen next week to float RDDT on the NYSE, which is the New York Stock Exchange. Shares going public is a milestone for which Reddit has seemingly worked hard; however, there are certain criticisms around it, both internally and externally.
Current status of the Reddit IPO as of March 13, 2024
The hope is to mark a valuation of $6.4 billion when RDDT becomes publicly available for trade on the NYSE. Shares are estimated to be priced in the range of $31 and $34 each. Floating shares at this price could work well, considering the total number of pieces available would be 22 million. Notably, not all of them would be available to the public. Some of them are expected to be allocated to Redditors. These comprise contributors and moderators who have tirelessly built up Reddit and helped the core team make the social media platform what it is today.
Externally, analysts speculate that RDDT would shake things up for the platform. First, transitioning from being a user to a shareholder would change the mindset. Meaning, Redditors might start looking at their work more from the POV of fetching better returns. The quality of the content could be drastically affected by this. Next, the fundamental principles of the company would change.
While not much has been said about this aspect, it is safe to assume that the point pertains to how the company currently operates. Users are free to make contributions of every type. They are later reviewed and filtered, but RDDT could be a game changer right from the beginning of the process.
Steve Huffman, the co-founder of Reddit, has justified share allocation by saying that it is about giving a sense of ownership to users, from community creation to actual ownership.
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Plans to utilize the funds primarily include expanding the platform and better investing in Bitcoin, Ether and Polygon as a form of payment for sales of certain virtual goods. Reddit has been up to that strategy, and there is a chance that it may continue to do so with full awareness about tax and regulatory implications.
Key Points to Watch
One major factor to look out for is how RDDT behaves in the first few days. Demand is well known to drive share prices. In the case of a platform like Reddit, it is often the illusion of desirability that gets traders in large numbers to invest in the product. Profit-making drives the downward trajectory that follows.
For instance, traders buy a share at $30 on the first day. Demand keeps rising, taking the price to $50 in the next 10 days. This is where they sell and book a profit of $20, hampering the market with a downfall due to selling pressure. It is ideal to wait a few days before buying RDDT, or any other share, for that matter. However, DYOR is still the best way to go.
The availability of RDDT in the market could bring more engagement to the platform. When allocated internally, redditors would want to have better content on the platform so that a higher number of users register and drive growth. Reddit primarily earns from advertisements. This segment would be backed when users engage more with a platform, part of which they own.
Google and Reddit announced that they are joining hands to train the AI model of Google. The idea is to leverage the content availability on Reddit for innovation.
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Investment in Reddit will boost the AI segment, too.
Looking ahead
The future outlook of Reddit is hard to comment on, considering the platform has only been registering losses. The recent figure in the column was reported at $90+ million last year. Current shareholders include the likes of Sam Altman, Fidelity, and Tencent. The IPO’s launch will change the dynamics and paint a different type of future.
