Shares of social forum giant Reddit opened at $47 per share on Thursday, but quickly soared to around $55, up about 60% from its IPO price of $34 per share. It recovered to stabilize at around $50 per share. The company had indicated a target range of $31 to $34 per share for its public market debut, but ultimately settled on the higher end of that range. The highest stock price at the time of this writing was $57.80, but it is currently a few dollars below that price and down a few percentage points.
With $804 million in revenue in 2023, Reddit is still unprofitable (its net loss last year was more than $90 million), but compared to its closest peer social media companies like Snap, Reddit has a lower revenue multiple. It may appear that the stock is trading at the upper limit of . But the company has an important AI story to tell that could get investors excited about its future. Earlier this year, Reddit sold a contract worth $203 million to an AI company for access to its data. And Reddit is a treasure trove of exactly the kind of training data his AI company needs, always hungry for large-scale language models, which bodes well for being part of the serious growth of the business in the future. .
It's worth noting that the FTC has opened an investigation into Reddit's plans to license user data to train AI models. If the company's AI strategy sparks investor interest, it will be interesting to see how the stock continues to perform as the investigation continues to unfold.
Another victory for the technology industry
Reddit's strong IPO debut on the heels of Astera's blockbuster initial public offering could shake up the current market dynamics and narrative surrounding public offerings. Few tech companies have tried the public markets as their valuations have been compressed since the bursting of the 2021-era asset bubble. This is partly due to discrepancies in the evaluations of private and public companies.
But the strong performance of both of the year's first two tech IPOs has eroded the argument that waiting is the best course of action for healthy private market tech companies. With interest rate cuts expected in the second half of this year, some companies may hold off a little longer, but Astera and Reddit are a boon for tech companies that are growing and can probably turn a profit every quarter, if not a year. is based on showing that it is warm and says something about AI in its prospectus.
However, early trading results do not necessarily lead to trouble-free public market life. Many of the tech IPOs of the 2021 era have lost value since their early buzzy debuts. Still, a chart that is pointing up is more bullish than one that is not. This week's doubleheader of IPO winners will see more offers announced from tech companies on the sidelines, including well-known IPO candidates like Turo that filed publicly and those that filed privately like Circle. This includes both corporations and just major corporations. Venture investors who are old enough to do so and didn't put money into either Astera or Reddit may have reason to admire it.
Will the IPO window really open?
If an IPO launches under current market conditions, there is reason to expect those conditions to hold or even improve as the year progresses. The Nasdaq Composite Index hit a new 52-week high today, with the index peaking at a higher all-time high than in 2021. That means tech stocks are more valuable than ever before, by some metrics.
Secondary investors recently told TechCrunch that the success of Reddit's IPO is not enough to tell whether the IPO market will return to life in 2024. But given Astera Lab's impressive performance yesterday and Reddit's strong performance today, it could be even more lively. This year's IPO market has been bigger than many expected.
You can expect it.