Reddit Prepares Long-Awaited IPO Filing to Go Public

Social media giant Reddit has officially filed for its initial public offering (IPO), initiating what could be the start of the 2024 IPO cycle.

With a long and complex history, Reddit enters the public markets with over $800 million in revenue for 2023, representing a notable increase from $666.7 million in the previous year. However, the company remains unprofitable on both GAAP and adjusted bases, raising questions about its potential valuation. Reddit's IPO timing aligns with the need for numerous technology startups and private companies to find an exit in the current market.

Despite its impressive revenue figures, Reddit continues to operate at a loss and relies on cash infusions to sustain its operations. In 2022, the company reported a net loss of $158.6 million and an adjusted EBITDA of negative $108.4 million. While 2023 showed improvements with a $90.8 million net loss and $69.3 million in negative adjusted EBITDA, the company's profitability remains uncertain. Reddit's IPO will be a test for its valuations, previously reaching $6.4 billion in its Series E and approximately $10 billion in its Series F funding rounds.

In an unusual move, Reddit plans to reserve shares for 75,000 of its users, allowing them to purchase shares at the IPO price before public trading begins. This unique approach, typically reserved for large investors, aims to involve the platform's community in its public debut. This move may distinguish Reddit's IPO from others, bringing a sense of inclusivity to its user base.

Reddit's IPO filing reveals a mixed financial performance. While the company posted a net profit of $18.5 million in the final quarter of 2023, its free cash flow remained negative at -$22 million. The company's revenue growth is notable, with global daily active users increasing by 27% in the period ending December 31, 2023. Reddit, with more than 500 million visitors in December 2023 and 73.1 million daily active unique users globally, sees advertising as a key revenue driver.

Reddit aims to leverage its user growth to boost advertising revenue. The company acknowledges being in the early stages of implementing machine learning and prediction models to optimize ad matching and deliver a better return on investment for advertisers. Reddit's estimated total addressable market for advertising globally, excluding China and Russia, stands at an ambitious $1.4 trillion. The platform continues to explore avenues to monetize its data, recently striking a deal with Google, potentially valued at around $60 million per year.

Despite the positive momentum, Reddit faces challenges in transforming user growth into sustainable profitability. The company's losses and negative cash flow highlight the need to address its operational efficiency. The success of its advertising strategies and partnerships, including potential agreements with major AI model providers like OpenAI, could play a crucial role in Reddit's financial trajectory.

Reddit's IPO filing marks a significant development in the tech industry, with the company navigating both growth opportunities and financial challenges. The unique inclusion of users in the IPO process adds an unconventional element to its public debut. As Reddit prepares for its roadshow and pricing, industry observers will closely monitor its performance, setting the tone for other late-stage tech companies considering an IPO. The platform's ability to capitalize on advertising, forge strategic partnerships, and achieve profitability will shape its narrative in the public markets.