Reddit is a popular community forum where people share content on a wide range of interests, from crypto to travel. Founded in 2005, it has gone on to stimulate some discussions that even rattled Wall Street. For example, a discussion on stocks spiraled into the GameStop saga in 2020. The Reddit IPO has been in the news as one of the upcoming IPOs of 2022, since the company filed for a public offering in December 2021.
Conde Nast acquired the site in 2006 and has had investments from high-profile players like investors Marc Andreessen, Peter Thiel, Ron Conway, Snoop Dogg, and Jared Leto. In August 2021, after a round of fundraising, Reddit’s valuation was pegged at over $10 billion.
The Reddit IPO
The company was founded by University of Virginia roommates Steve Huffman and Alexis Ohanian, along with Aaron Swartz in 2005.
Today, Reddit is one of the biggest websites on the Internet where people come together to share opinions, discuss current issues, and anything they are interested in. Functioning as the Internet’s bulletin board, the Reddit IPO is supposed to help the company expand its reach and rival its competitors’ offerings.
The site offers a similar platform to connect like its competitors Facebook, Twitter, Snapchat, LinkedIn, amongst others. Reddit had always enjoyed robust growth until the pandemic struck. Experts say that the company saw its daily user count stagnate between 2020 and 2021. It is till building its advertising revenue and generated around $350 million in 2021, primarily from advertising.
Reddit is known for promoting free speech. However, this led to many controversies and constant change in moderators. In all, the company has raised close $1.3 billion in funding over 10 rounds. It has managed to attract investments from seasoned angels to elite VCs, bringing with them a wealth of strategic experience and business acumen. The company was initially expected to launch the Reddit IPO in 2022, but has postponed it for now. There is no clear communication on a date of the IPO of Reddit, although speculation is rife that it will happen by the end of 2022.
Why is 2022 a bad idea for the Reddit IPO
Wall Street will vouch for the fact that 2022 has been a bad year for public offerings. Most stocks have fallen well below their IPO debut price while others have had to slash their valuations to make a public offering.
High inflation and predictions of a recession have sent investors scurrying for long-term assets with assured returns. Most investors have moved away from riskier bets and are unwilling to part with funds unless they can see a clear growth path for the future. Recent reports also indicate that inflation might go even higher. In such cases, investing in an IPO is a tricky affair, with more risks than gains.
In the past few years, Reddit has focused on enhancing user experience and driving growth. Although the Reddit valuation went from $6 billion in February 2021 to $10 billion in August of the same year, there has been no update on its valuation for over a year. Most firms who launched their public offerings this year, have had to slash their valuations by nearly half.
“Investors are really risk averse at this moment, and that’s what’s really impacting the lack of activity that we’re seeing,” said Rachel Gerring, IPO leader at EY Americas, told CNBC. “They’re looking for companies that are focused more on growth and profitability as opposed to the growth at all costs that we were seeing in 2021.”
Analysts have mentioned that over the last two years growth has stagnated for the social media company, and the Reddit IPO might not be as valuable as it once was. Although the Reddit IPO is expected to fund expansion plans, there is no data on how the company plans to go ahead with it. For now, we need to keep an eye out for Reddit news and announcements.
The downturn in the market also means that it might be more economically viable to wait a little longer instead of having the Reddit IPO this year.
