3 min Applications

Reddit IPO no guarantee of success

Reddit IPO no guarantee of success

After a long run-up, Reddit’s IPO is imminent. Remarkably, Reddit users themselves can also participate in the IPO. In March, CEO Steve Huffman will announce an initial public offering.

Reddit has 76 million daily users, known as Redditors. However, the social media platform withdrew its free API to ensure its users flock to the main Reddit app, advertising included. With that, many popular third-party services disappeared because of the potentially astronomical cost of API usage. This initiative took place in mid-2023 with the prospect of an IPO already looming large.

The company posted a $90 million loss last year, representing a minor improvement thanks to increased revenue. However, Steve Huffman’s compensation package as CEO in 2023 is significant at $193.2 million, triple what Apple CEO Tim Cook earned (63.2 million).

Huffman does argue that it is time for Reddit, now 18 years old, to grow up. That means getting in better financial shape, which includes outside investment. It will initially make 10 percent of its shares available for the IPO. It was recently announced that Reddit is already making its own content available to Google for at least $60 million a year.

Also read: Google pays $60 million annually for content on Reddit through AI deal

Reddit hopes to do that by involving its own community in the IPO. Users with a lot of acquired “karma” (points that can be accumulated with highly rated comments) and moderators of the many subreddits (read: subforums) have received an invitation. However, only American users can join this Directed Share Program (DSP), according to the message Reddit sent to these users.

Turbulence afoot

As a social media platform, Reddit has a wide variety of communities. However, some subreddits are particularly controversial, especially since moderation is almost always done through volunteers. Monitoring for illegal and otherwise undesirable content is a lot less restrictive than on Meta’s platforms or X, for example. Also, Reddit itself cites r/wallstreetbets (WSB), a community focused on the stock market with enough power to significantly influence it at times.

On CNBC, Reddit admits that its userbase may cause problems in the stock market. At the very least, they feel obligated to call it a “risk factor” for the IPO. This is certainly justified, especially given some WSB users are already calling for shorting Reddit stock, essentially betting against it. Playing the stock market already led to the sudden skyrocketing of value of the struggling video game store GameStop, but numerous examples can also be found of WSB members who saw their savings evaporate by basically gambling on the success and failure of certain stocks. If that kind of practice also happens to Reddit on the stock market, it could scare away established investors.

Established shareholders

Reddit’s IPO could become quite turbulent, even though its current owners are established parties. For example, Advance Publications, owner of media company Condé Nast, is the largest shareholder. Behind it follows Tencent, which owns Epic Games, among others. OpenAI CEO Sam Altman is the third-largest shareholder. Huffman is next on the IPO list as a co-founder, although he owns only half of Altman’s shares.

Also read: Verified X accounts being traded on the darkweb