What does the RDDT IPO mean for the broader tech IPO market?

Despite skepticism about the company’s valuation, the social media website and app Reddit Inc. debuted on the New York Stock Exchange under the symbol RDDT.

The stock ended the March 21 session at $50.44, up 48% from its price of $34, which was already at the high end of the company’s announced range of $31 to $34.

The company and other shareholders who parted with shares raised about $750 from the initial public offering. The company has brought in about $519 since the IPO. Reddit’s market capitalization after the first day of trading stood at approximately $8.19 billion.

The IPO was oversubscribed, meaning there was a lot of interest. The stock now has 24.5 million shares in the float.

The technology was ready for a successful IPO

Tech IPOs have been in the doldrums since 2021. Higher interest rates and bearish market action in 2022 were largely responsible for the dearth of new offerings.

Reddit, launched 19 years ago, hosts thousands of chat rooms geared toward specific interests. One that investors and traders may be familiar with is WallStreetBets, which made meme stocks like AMC Entertainment Holdings Inc. famous. New York Stock Exchange: AMC and Rivian Automotive Inc. NASDAQ: RIVN.

In pre-IPO regulatory filings, the company said its revenue for 2023 was $804 million, a growth of 21% over 2022. Gross margin in 2023 was 86%.

The company reported a net loss of $90.8 million in 2023, narrower than its loss of $158.6 million in 2022. This is an attractive feature for institutional investors who want to see a company reach profitability over a period of reasonable time.

Integration of ads with user content

Reddit plans to take a page from the books of social media companies like X (formerly Twitter) and Meta Platforms Inc. NASDAQ: META leveraging ads in users’ feeds that blend with user-generated content.

Reddit also had the benefit of free community moderators, saving money on administrative costs.

As part of the public offering, Reddit allowed several moderators and longtime users to purchase shares through a direct share program. This is a tactic that has been used in other public debuts as a way to reward top customers and highly engaged users.

In some ways, the Reddit IPO is a test for more IPOs among tech stocks. More recent IPOs in the IT industry, such as Instacart, whose corporate name is Maplebear Inc. NASDAQ: CART and Klaviyo Inc. NYSE: KVYOwere considered disappointing, although that doesn’t mean such titles are destined to be long-term laggards.

Big Astera Labs IPO Earnings

It’s not a consumer-facing stock, so it’s not as well-known, but data center hardware specialist Astera Labs Inc. NASDAQ: ALAB was listed on the stock exchange on March 20 and recorded a 72% increase compared to its IPO price.

It probably helped that the Federal Reserve said it would follow through on its promise to cut interest rates three times in 2024. Technology stocks benefit when rates fall, as lower rates reduce borrowing costs. This is critical for capital-intensive industries or companies whose expenses still exceed revenue, which is common among startups.

Additionally, technology companies often rely heavily on future earnings, making them more attractive in low-rate environments.

In its prospectus, Reddit cited four key areas of growth:

• Advertising: By 2027, the company estimates its total global advertising addressable market, excluding China and Russia, will be $1.4 trillion. Its market opportunities are based on the digital advertising market and include desktop and mobile web ads, display, video and social direct response ads, as well as search advertising.
• Data license: The company sees an emerging opportunity in data licensing. “We believe the importance of data for all types of analytics and AI, from training to testing and model refinement, positions us well to tap into this strong market,” the company said. It recently entered into “certain data licensing agreements with an aggregate contract value of $203 million and terms ranging from two to three years,” according to the prospectus.
• User economy: “As we introduce new ways for developers to add additional features to their communities, we believe there will be further development of economic features on Reddit (e.g., games),” Reddit said.

Before considering Reddit, you’ll want to hear it out.

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