Shares of the social forum giant Reddit closed the first day of trading at $50.31, up nearly 48% from its IPO price of $34 per share. The company had indicated a target range of $31 to $34 per share before its public market debut, eventually hitting the top of that range. Prices are still bouncing, although they have cooled and appear to be below $50.
With $804.0 million in 2023 revenueand still unprofitable (with net losses of more than $90 million last year), Reddit may appear to be trading at its highest multiple of revenue compared to its closest comparable social media companies like Snap. But has an important AI story to tell which could get investors excited about its future. Reddit sold $203 million contracts with artificial intelligence companies to access its data earlier this year. And Reddit is a treasure trove of exactly the kind of training data that ever-hungry big language AI companies need, which bodes well for it becoming a serious growth part of its future business.
It is worth noting that the FTC has opened an investigation on Reddit’s plan to license its user data to train AI models. If investor interest is sparked by the company’s AI strategy, it will be interesting to see how the stock continues to perform as this research continues to unfold.
Another win for technology
Reddit’s strong IPO debut, coming on the heels of Astera’s blockbuster IPO, could shake up current market dynamics and the narrative surrounding the IPO. In the wake of the compression of tech valuations following the bursting of the asset bubble of the 2021 era, few tech companies have tried the public markets. In part this is due to private-public valuation mismatches, among other factors.
But with the first two tech IPOs of the year performing well, there’s less weight to the argument that waiting is the best course of action for healthy private market tech companies. With interest rate cuts expected in the last half of the year, some companies may hold out a little longer, but Astera and Reddit are signs that the waters are warming for tech shops that can show growth, perhaps even quarterly earnings if not an annual basis and they have something to say about artificial intelligence in their newsletter.
However, early trading results do not always bode well for a smooth life on the public market. Many tech IPOs of the 2021 era have lost value since their first, hot debuts. However, charts that point up are more bullish than charts that don’t. If this week’s doubleheader of IPO winners dampens more bids from tech companies on the fringes — both well-known IPO candidates like Turo that have gone public and those like Circle that have gone private, as well as companies that are just big enough and big enough to do so—the venture capitalists who didn’t put capital into either Astera or Reddit may have reason to applaud.
Will the IPO window really open?
If the IPO opens under current market conditions, there is reason to expect the situation to be maintained or even improved as the year continues. The Nasdaq Composite hit a new 52-week high today, with the index topping out at a higher high than in 2021. That means tech stocks are, by one measure, as valuable as ever.
Secondary investors They recently told TechCrunch that they weren’t sure a successful Reddit IPO would be enough to bring life back to the IPO market in 2024. But with Astera Labs’ impressive performance yesterday and Reddit’s strong showing today, maybe there’s more life in the market The IPO market this year than many thought.
One can hope.
