Reddit cashes in on GameStop chaos with $10bn valuation, but no news on IPO

By Eric Johansson

Reddit has cashed in on the GameStop trading chaos by raising a $700m Series F investment round, pushing its valuation past the $10bn mark. However, the social forum giant stayed mum about its plans to go public.

The cash injection follows Reddit raising $250m in a Series E round at a $6bn valuation in February. Since then, Reddit has seemingly profited from the links between itself and the GameStop trading turmoil earlier this year.

The memestock commotion, which started on the WallStreetBets subreddit, shaved billions of dollars off Wall Street incumbents’ profits. It also embroiled Robinhood in a scandal after the stock-trading app froze trading in GameStop and other stocks associated with Reddit traders.

Since then, Robinhood suffered through a lukewarm reception at its initial public offering (IPO) in July and its services has been equated to “gambling” by investor force majeure Warren Buffet.

Comparatively, Reddit’s luck has seemingly changed during the same period. In the second quarter of 2021, Reddit enjoyed advertising revenues of over $100m for the first time ever, representing a 192% increase compared to the same period in 2020.

The news comes as the social media industry is changing. Reddit rivals like Facebook and Google, which owns YouTube, are busy diversifying their revenue streams from predominantly focusing on ads to moving into sectors like fintech, ecommerce and entertainment. The endgame seems to be, according to a recent GlobalData research report, to develop WeChat-like super-apps.

Punching above its weight

CEO Steve Huffman, entrepreneur and Patreon investor Alexis Ohanian and the late internet activist Aaron Swartz founded Reddit in 2005.

The San Francisco-based company has since grown into a discussion forum with more than 52 million daily active users spread out across 100,000 communities.

That being said, it is still dwarfed by Facebook’s nearly two billion daily active users and Twitter’s 206 million monetisable daily active users, a term for users who see the ads placed on their platforms, as Reuters pointed out.

Similarly, Reddit’s $10bn valuation is significantly smaller than the $1tn market cap Facebook achieved earlier this summer or Twitter’s current $51.8bn market cap. This doesn’t seem to bother Reddit’s management that much, though.

“We’ve grown up in the shadow of Facebook and Google, and pretty much every dollar we make we’ve had to fight for,” Huffman told the New York Times in an interview.

However, some market analysts believe that Reddit’s unique platform and its popularity among younger netizens could prove a great engine for growth.

“Reddit is a unique platform compared to other social media sites such as Facebook,” Jaimini Pattani, analyst at GlobalData, tells Verdict. “Reddit allows users to engage in topics they are passionate about with the community of others.”

These communities are also the reason why the WallStreetBets subreddit had such an impact. Since the GameStop chaos occurred, more Reddit communities interested in different aspects of financial services have sprung up on the platform. This could potentially signal that Reddit is about to become even more important for financial services, especially ones targeting younger customers.

“We are likely to see more crypto firms and communities use Reddit as they use it to discuss what they think will happen with bitcoin and new cryptos, but as usual, it’s speculative,” Pattani says. “Newer fintech firms will likely start using it more as a platform to engage with younger customers to expand their customer base and get a feel for what potential customers think of their business models and offerings.”

What about the IPO?

Reddit’s $700m Series F round, as led by Fidelity, has also been seen as another step towards the platform making its debut.

Other signals that an IPO is brewing is that Reddit hired its first chief financial officers in March. Drew Vollero joined from being CFO at security firm Allied Universal. Vollero is also an IPO veteran, having served as social media rival Snapchat’s CFO during its public listing in 2017.

“We are still planning on going public, but we don’t have a firm timeline there yet,” Huffman told the New York Times. “All good companies should go public when they can.”