Here's how Reddit plans to price shares when it goes public

ByClare Duffy, CNN, CNNWire
Tuesday, March 12, 2024
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On Monday, Reddit said it expects to price shares between $31 and $34 each when it makes its long-anticipated initial public offering, which will make it the first social media company to go public in years.

The announcement gives potential investors - including some Reddit users - additional information to evaluate if they want to buy stock in an IPO that will allow more retail investors than usual to participate because of its unusual structure.

Reddit, along with some existing stockholders, plans to offer 22 million shares of the company's Class A stock, meaning the IPO could raise as much as $748 million from those shares, according to an updated prospectus. The company officially announced its IPO last month.

Reddit itself expects to earn approximately $450 million in proceeds from the IPO, if shares are priced at the midpoint of its expected range. The company said it will use the funds for general purposes such as operating expenses, and potentially to license, acquire or invest in new technologies, assets or intellectual property.

Overall, Reddit is seeking a $6.4 billion valuation with the IPO. That's less than the $10 billion valuation that Reddit targeted when it announced its last funding round in 2021.

Some investors believe Reddit's listing could be a bellwether for the larger IPO market, which has been in a slump, with Wall Street hoping for a blockbuster listing that could revive dealmaking. And it could signal the current appetite among investors to buy shares in an unprofitable company after Reddit said last month it has not turned a profit in its nearly 19-year history.

Reddit reported a net loss of $90.8 million in 2023. However, the company said its sales are growing - revenue jumped 21% year-over-year in 2023 - and it's aiming to grow new lines of business, including licensing data to AI firms, to boost its bottom line.

The company also said it now has, on average, more than 73 million daily active users, as of the final three months of 2023, up from the 52 million daily active users it reported in 2021.

Reddit is taking the unusual step of giving a portion of those users the opportunity to become shareholders by reserving 8% of its IPO shares, or 1.76 million shares, for its most loyal Redditors. Users had until March 5 to pre-register to buy shares in the listing; those who did will have the chance to opt out of purchasing shares now that they have been priced.

The company has acknowledged that "Redditors' participation in this offering could result in increased volatility" in its stock price. Unlike the institutional investors who are typically involved in IPOs and tend to hold onto their investments for longer time periods, individual retail investors are more inclined to sell quickly, which could negatively affect the company's stock price once it is public.

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