Reddit IPO: Share sale values ​​social media firm at $6.4 billion

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  • By Tom Gerken and Mariko Oei
  • BBC News

image Source, getty images

Reddit has priced its shares at the top of the market range, valuing the social media platform at $6.4bn (£5bn).

It has raised $748 million as it sold 22 million shares for $34 each, making it one of the largest initial public offerings (IPOs) by a social media firm.

Trading of the shares will begin on Thursday on the New York Stock Exchange.

In an unusual move the company offered some shares to users of the platform, although it has not been disclosed how many took up the offer.

Reddit was founded almost 20 years ago and has become one of the most popular websites in the world.

It is an online forum where users can discuss topics that interest them. According to the company, it had more than 73 million users by the end of December 2023.

But the filing brings to the fore a question that has been simmering behind the scenes for years — how can a business make money from essentially random conversations.

People don’t pay to use Reddit – the website is completely free for people to browse, post, and comment.

It couldn’t make a profit for 20 years, and some might ask why Reddit is worth billions if it never made money.

It has tried a few things, and a significant visual makeover in 2017 made the website more friendly to advertisers.

But it seems the end of the road to profitability is in sight for Reddit, which is built around an AI model.

That’s because companies like OpenAI, the developer of ChatGPIT, will pay for the data from those random conversations.

Google is believed to have paid Reddit $60m for the right to scan almost two decades of discussions to make its AI more humane – and Reddit has said it has raised $200m over the next two to three years. Licensing deals worth more than Rs.

In February, Reddit said it faced a loss of $90.8m in 2023, so money from artificial intelligence (AI) firms could make the platform profitable.

Inquiries and allegations

But there are plenty of concerns on the horizon for Reddit, too.

For one thing, social media platforms are facing increasing scrutiny from regulators.

The US Federal Trade Commission (FTC) is already looking into how Reddit licenses its data to AI models – generally speaking, regulators don’t like it when big technology companies use user-generated data. Sells data.

Although the platform may have seen this coming, it may have been surprised by the challenge from mobile phone company Nokia, which is accusing it of infringing its patents.

“We will evaluate their claims,” ​​Reddit said. He said he has faced similar allegations in the past.

Perhaps most importantly, Reddit’s filings with the US financial markets regulator, the Securities and Exchange Commission (SEC), note to its users a potential risk that comes with owning shares in the company.

“If we fail to grow or retain our user base or user engagement declines, our business… and prospects will be harmed,” the filing said.

“If Redditors do not continue to contribute content or their contributions are not valuable or attractive to other Redditors, we may experience a decline in the number of Redditors accessing our products and services… resulting in Advertisers may suffer losses.”

Reddit’s user base is known to react with disappointment to changes made to the platform.

Such is their dislike of changes made in recent years, a search for chief executive Steve Huffman – username u/space – on the forum shows that when Redditors mention him the comments are usually preceded by hate speech. Are.

And although there have been efforts to create an alternative platform, one of Reddit’s biggest advantages is what it doesn’t have – a significant competitor.

While there may be concerns on the part of Redditors, the social media platform appears to be on relatively safe ground when it comes to linking its stock market value to its users, as long as they have nowhere else to go.

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