Reddit’s first day of trading Thursday was a soft ringtone tickling the ear of a sleepy IPO market.
After a sluggish 2022 and 2023, Reddit’s early success as a public company could encourage other “classic” tech companies to go public. The 19-year old social media site raised $748 million for the company and its shareholders in its IPO, valuing it at $6.4 billion. That’s more than all but one U.S. company (consumer health-focused Kenvue, the owner of Band-Aid) raised in IPOs last year.
Reddit ended its first day of trading with shares up 48%, pushing its value closer to $10 billion. IPO expert and former U.S. Securities and Exchange Commission economist Josh White told Quartz that “absent [Reddit’s share] price plummeting in the next few days or a week,” he thinks “a lot of companies are going to consider it” as a motivating factor to launch an IPO.
“We’re all really excited about the IPO market coming back,” the COO of retail investing platform Public.com, Stephen Sikes, contended in a separate interview. “Debuts like today for Reddit will embolden more companies to go public.”
More about the IPO market: From doom to gloom to (maybe) boom
After a tech IPO frenzy in the early days of the pandemic, the IPO market lagged in 2022 and 2023. Last year, the global IPO market saw its slowest fourth quarter since 2012, according to S&P Global Market Intelligence data.
Even so, big name IPOs such as U.K.-based Arm, Klaviyo, Instacart, and Cava made a splash in 2023, and unlike their counterparts from the prior two years, they are actually profitable.
While Reddit hasn’t made it to profitability yet — the company posted a loss of $91 million in 2023 — its sales are rising and its loss is shrinking. And its early success, on the back of Arm’s staggering $4.9 billion IPO late last year, means there will likely be a spike in IPOs through the middle of 2024.
Of course, Reddit cannot single-handedly push companies to launch IPOs. The other big factor is the Fed’s recent signaling that it still plans to cut interest rates by three-quarters of a percentage point by the end of the year.
That uptick could slow down later in 2024. White told Quartz he forecasts a “double-inverted U shape” in the IPO market, with the spike in IPOs pausing in the later half of the year as the U.S. presidential election gets going.
But, he noted, “as long as there’s no madness around the election results, inflation continues to stay down, and the Fed stays on track and actually starts cutting rates…the IPO market will start to open up this year and it’ll really open up next year.”
The return of classic tech
While there’s a healthy appetite for investors for AI, Reddit’s success as a social media site could revive interest in so-called classic tech. While AI is part of Reddit’s business model, White says the company can be better described as “AI-adjacent,” since its sales are mostly driven by advertisers. Reddit has found a way to improve sales — which were up more than 20% in 2023 to $804 million — where Snap and X (formerly Twitter) have floundered.
“I think the larger takeaway is that investors are valuing growth that’s not just AI driven,” said White.
One cautionary note: a meme-ing could maim investors
To be sure, there’s the risk that Reddit will get “memed” by its very own users when the company’s options begin trading. Redditors on the notorious subreddit WallStreetBets are already signaling that they plan to short the stock.