Why Reddit is going public

Reddit users will be able to buy shares in the social media platform when it goes public next week.

Dubbed the "front page of the internet", Reddit is "gearing up for its much-anticipated stock market debut". It could reach a valuation of up to $6.4 billion (£5 billion) in its US initial public offering (IPO), said City A.M..

Traders and the "historic" New York Stock Exchange trading floor will be "decked out in Reddit's white and orange colour scheme" for the IPO, sources have told the Financial Times. But the company has never made a profit and some commentators believe it does not make for an attractive investment.

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What is Reddit?

Reddit, which was founded almost two decades ago, is an online forum where users can post questions and comment on subjects that interest them. It hosts thousands of niche discussion groups, called subreddits, which are set up and moderated by volunteers.

It has become the "internet talking shop", said The Times. "With its basic style and quirky, sometimes offensive threads", it "feels like a throwback to the early days of the internet". Visiting it is "rather like being in a digital pub", except with "more readily available pornography".

Reddit has "often courted controversy", including in 2021 when its users sent the share price of GameStop, a struggling video games business, up by more than 700% during four "frantic days of trading" under a thread entitled WallStreetBets.

Why is it floating?

Reddit has recorded losses every year since its launch, including more than $90 million last year. It makes most of its income (its revenue was $804 million last year) through advertising, although it recently agreed a deal with Google that allows the technology giant to access Reddit data to train its artificial intelligence (AI) models.

So the platform is "trying to secure an anchor investor as it pitches its fast-growing advertising business and the promise of revenues from selling its data", said the FT.

But the forum's users have a "deep sense of ownership over the communities they create on Reddit", wrote co-founder Steve Huffman in a letter to prospective investors. The company wants "this sense of ownership to be reflected in real ownership – for our users to be our owners. Becoming a public company makes this possible."

What does it mean for the future?

Reddit plans to price its initial public offering on 20 March and start trading the following day, two sources told the Financial Times. "The company is targeting between $31 and $34 a share, translating to a valuation of as much as $6.5bn."

The high valuation earns Reddit an "Unattractive Stock Rating", said Forbes. The magazine expects a $5 billion valuation, and while this is half the $10 billion private market valuation seen in 2021 when interest rates were zero and money was cheap, it "remains much too high", it said.

The company "has never been profitable and should not be a publicly traded company" as it "may never monetize its platform without angering its users". Its business model is "inescapably built on a catch-22: make money or please users".

This view was bolstered by the reactions of some Reddit users, said the BBC. When news of the IPO broke last month, users wrote that it was the "beginning of the end", "good while it lasted", and said the site's owners had "ruined it".

In an IPO filing to US regulators last month, Reddit revealed its losses had come down to $90.8 million (£72 million) while revenues had grown by 21% to $804 million (£634 million) in 2023. Therefore, said the FT, its debut will be "closely watched" as a "gauge of the appetite for tech listings".