Reddit Needs to Be OK Being Reddit

Reddit has curbed its own enthusiasm. It’s a start. 

The 18-year-old social network that is finally preparing to go public plans to sell 22 million shares at a price range of $31 to $34, according to updated initial public offering papers filed on Monday. That reflects a total proposed market value of up to $6.4 billion—about 36% below the $10 billion valuation Reddit landed from its most recent private funding round in August 2021. Reddit reportedly plans to commence its IPO roadshow later this week ahead of a listing on the New York Stock Exchange next week. 

The timing is good, given the dearth of major IPOs and a strong market for tech stocks. The Nasdaq Internet Index is up nearly 13% over the past three months, outperforming the Dow and S&P 500. And much of that gain has been driven by social-media titan and Facebook and Instagram parent company Meta Platforms, which saw its ad revenue sharply recover in 2023 while it was also enacting major cost reductions. Meta’s share price has jumped 22% since its most recent earnings report six weeks ago and nearly tripled over the past 12 months.

But comparisons to a social platform that has 40% of the earth’s population checking in daily has drawbacks for Reddit, which has about 2% of Meta’s daily user base and is still losing money and burning cash annually. And recent growth challenges faced by Snap, Pinterest and Nextdoor have made social media advertising look like a winner-take-all market. 

Advertising analyst Brian Wieser disputes that idea, noting that the industry has long been able to support smaller, focused players even when they seemingly compete against entrenched giants. “If you work from the premise that you are a niche player and do what you do very well, you can succeed,” he said. 

That is a reality few others seem to accept. The annual operating expenses of Snapchat - parent Snap still suck up 84% of the company’s revenue seven years after it went public. Twitter’s operating expenses were 66% of revenue for the 12-month period before Elon Musk took the company private in late 2022 and changed it into X. Reddit is spending a greater portion of its annual revenue—55%—on research and development alone than Snap and Twitter did in the 12-month period before their respective listings. Talked UpReddit's operating results per quarterSource: the company