Reddit is seeking a US$6.5 billion valuation ahead of its Initial Public Offering (IPO). The move comes after a failed 2021 bid, however, the company feels it is now in a stronger position to ride the Artificial Intelligence (AI) wave.
The stock offering could rank among the biggest US IPOs this year.
In a regulatory submission on Monday, Reddit announced plans to offer approximately 15.3 million shares, with a pricing range of US$31 to $34 per share.
Additionally, its investors are set to sell an extra 6.7 million shares.
Combined, these share sales could generate approximately US$748 million, with Reddit expecting to raise around US$519 million for the company through its IPO. Given the total number of shares outstanding, this transaction would place Reddit's valuation at US$5.4 billion.
Reddit will trade on the New York Stock Exchange using the symbol ‘RDDT’.
Riding the AI wave
Following a tumultuous year that resulted in Reddit gaining increased control over a significant collection of data, which CEO Steve Huffman has referred to as a "vast corpus" of valuable information for AI training, the company has seen new opportunities.
Google (NASDAQ:GOOGL) recently secured a deal with Reddit, valued at an estimated US$60 million annually, for real-time access to this data.
The company is looking to leverage the current enthusiasm surrounding generative AI, however, changes made last year to the terms of access to its Application Programming Interface (API), led third-party developers to find the new conditions unsustainable, resulting in the shutdown of numerous apps.
The move sparked significant protests and led to considerable changes within some of Reddit's largest communities.
In an unconventional move, Reddit has allocated nearly 2 million shares for its moderators and users as part of the IPO deal, despite varying expectations about the company's future prospects.
Reddit community could benefit
Reddit plans to allocate 1.76 million shares, equivalent to 8% of the total shares being offered in its IPO, exclusively to Redditors.
In the company's official statement, CEO Steve Huffman highlighted the pivotal role of the community, including moderators and users, in building the platform. He expressed Reddit's desire for these contributors to have the opportunity to hold a stake in the business once it becomes publicly traded.
"We hope going public will provide meaningful benefits to our community as well. Our users have a deep sense of ownership over the communities they create on Reddit," Huffman wrote in a letter published in the filing.
He added, "We want this sense of ownership to be reflected in real ownership — for our users to be our owners. Becoming a public company makes this possible. With this in mind, we are excited to invite the users and moderators who have contributed to Reddit to buy shares in our IPO, alongside our investors."
There are caveats.
According to the recent filing, Reddit will offer the opportunity to purchase shares in its IPO to a select group of its users and moderators. The company plans to roll out invitations to this select group in "six phased priority tiers," targeting users based on their "karma," or reputation score on the platform, and moderators on their level of activity.
Reddit has outlined that if the demand within an early tier surpasses available shares, those eligible can opt to be placed on a waitlist. However, being invited to the directed share program does not ensure an allocation of shares.
To be eligible for the offer, users and moderators need to have established an account by January 1, 2024, be residents of the US, and be at least 18 years old. The offer does not extend to current or former employees of Reddit, as stated in the filing.