On December 15, social media giant Reddit filed a confidential S-1 form with the SEC confirming its long-rumoured initial public offering (IPO).
The 16-year-old US message board website listed the announcement on its website though did not yet release any financial details of the offering. The company has had numerous funding rounds, with its latest Series F funding round raising $700m in August of this year. The company at the time was valued at $10bn and has in total raised $1.3bn in total funding.
News was expected but new CFO will push IPO success
The news will come as no surprise to the market as the public offering has been rumoured for a number of years. In March this year, the company hired Andrew Vollero, former Snap Inc (Snapchat) CFO which served as a hint that Reddit brought in the executive to help guide it through the company’s upcoming IPO.
Vollero was at the forefront of Snap’s successful IPO in 2017 so will have brought necessary relevant experience to the company to make Reddit’s IPO a success.
Reddit has been at the centre of share price discussion over the last year as its ‘r/WallStreetBets’ subreddit message board sparked gigantic share price inflation of companies Gamespot and AMC. This publicity has only helped the company as its Q2 financials reported a 192% year-on-year increase in ad revenue. It is no doubt that the $10bn valuation could be much greater by the time the company lists, potentially reaching the $15bn mark.
Reddit ranks as having the least valuable users – this will change
Reddit has for a long time been known as the social media platform whose users are the least valuable amongst its rivals.
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The reasonably new video platform TikTok with its more than 700 million active users and $34bn revenue ranks highest, bringing in $46.86 per user. Reddit on the other hand with a user base of 430 million only generated $212m for the year, equivalent to just $0.49 per user.
As Reddit looks to an IPO, any investors will want that revenue to rise significantly so there is a future return on investment. Currently, adverts on the platform are non-invasive and appear infrequently, but the public offering could mean investors demand more adverts to raise ad revenue, which would lead to an influx of ad-supported content.
This would raise questions with long-term Reddit users and would alienate some of its audience. However, the current financial model of the company is clearly ineffective and requires improvement for the company to be able to compete with the likes of TikTok, Facebook (Meta) and Twitter.