Reddit’s 48% spike in NYSE trading debut hints at a strong future

Its highly-anticipated public offering was initially priced at $34 per share, but began trading Thursday afternoon at $47 per share under the ticker symbol (NYSE: RDDT). Prices continued to climb, reaching a high of $57.80 a share, and closing at $50.44.

Reddit ended its first trading day up 48%, propelling its market cap to over $9bn.

Reddit’s NYSE debut represents the first social media IPO since Pinterest went public in 2019.

The self-anointed ‘front page of the internet’ celebrated the launch with a cheeky promo film starring its beloved alien mascot Snoo.

The company’s biggest shareholder, Condé Nast parent Advance Publications, is expected to make around $1.4bn from Reddit’s first day of trading. Other key shareholders include Chinese gaming company Tencent, Fidelity and OpenAI’s Sam Altman.

Reddit faced some skepticism in the lead-up to its IPO, including worries about how the platform might reverse years of losses and balance user and advertiser demands. Concern was compounded by rising tensions between the site’s power users and leadership over the platform’s management (which came to a head last year when Redditors protested the company’s API pricing changes).

The platform, like other publicly traded tech companies including Airbnb and Rivian, agreed to set aside a chunk of shares in its public offering – 8% to be precise – for site moderators and select power users. But some moderators recoiled from the offer over the bad blood between users and management. And some users (many in the site’s infamous r/WallStreetBets subreddit, the community that spurred the short squeeze on GameStop in 2021) even suggested shorting Reddit’s stock.

In spite of these challenges, the stock’s strong NYSE debut on Thursday bodes well for the company’s prospects, experts say.

“There was plenty of skepticism surrounding the Reddit IPO … and they still have a long way to go to showcase some sustainable business fundamentals. That said, I see plenty of reasons to be excited and to believe in a positive future for them and their stock,” says Dylan Viner, managing partner and chief strategy officer at TRIPTK, a Havas-owned brand strategy consultancy. “The brand’s DNA is in the power of community, and in the deep interests, passions and niches that connect people and mold fandoms.”

This idea – that investors are attracted to Reddit for its unique value proposition – is echoed by other industry players.

“Reddit’s strong first day of trading – along with an opening well above its targeted range of $34 – has as much to do with investor appetite for AI stocks and overall growth opportunities as it does with the platform itself,” says Max Willens, a senior analyst at eMarketer focused on social media and advertising.

The IPO is also likely to help Reddit capitalize on its strong growth trend. As it stands, Reddit is the fastest-growing social media platform on the market, according to data from GWS Magnify. The platform’s year-over-year growth in February was close to 24% – the next highest growth rate for a social platform was just 5% for Instagram. Plus, in January, Reddit surpassed X in terms of monthy active users, reaching 46 million, compared to X’s 45 million.

Of course, Reddit’s long-term success is not a shoo-in.

“Echoing the words of legendary investor Benjamin Graham, ‘In the short run, the market is a voting machine, but in the long run it is a weighing machine,’” says Cody Slach, senior managing director at Gateway Group, an investor relations and public relations advisory firm.

Reddit’s impressive performance on Thursday, Slach says, may just reflect investor appetite amid a dearth of tech IPOs in recent months and the US economy’s “record-setting performance” of late.

While Reddit’s long-term outlook isn’t bad, he says, it won’t be an easy road. “It must play the game Wall Street wants it to play – beat your numbers, raise your outlook and be profitable. While the market currently favors Reddit’s shares, the company’s recent entry into the public market and its ongoing journey towards profitability suggest we may see some price fluctuations in the near term.”

And it’s reasonable to predict that Reddit’s stock might plateau or dip, considering the performance of other highly anticipated IPOs of the last few years.

Finder, a personal finance comparison platform, recently analyzed 20 of the most highly anticipated IPOs in the US and UK since 2018. The findings indicate that 12 out of the 20, or three in five, saw their stock price dip an average of 11.9% after the first week of trading – and things only went downhill from there. A year on, 14 in 20 were still down, with an average decline of 43.2%.

“Whilst there is a chance [Reddit’s stock performance] continues due to it being so closely tied to the ‘meme stock’ phenomenon it helped facilitate back in 2021, investors should be very careful,” says Finder’s deputy editor of investing George Sweeney.

Nonetheless, many experts remain cautiously optimistic.

The IPO is also likely to buoy the platform’s advertising business, Reddit’s primary revenue driver. In fact, eMarketer projects that Reddit’s US advertising business “will grow quite healthily this year,” Willens says, at a rate second only to TikTok among social media companies.

This is good news for the company, which has faced steep competition from the likes of TikTok and Meta over ad dollars in recent years, and has attributed previous financial losses to relatively low engagement rates on ads.

However, any growth of the platform’s ads business is likely to come from a small group of advertisers, Willens points out. “If Reddit wants to keep its new investors happy, it will have to demonstrate that it is capable of growing multiple branches of business at once.”

For TRIPTK’s Viner, who advises brands, the platform is looking more attractive than ever from a marketing and advertising perspective. “Recognition of [Reddit’s] value and the desire to tap into [its rich and engaged communities] is something brand marketers are talking about and building strategies around,” he says. “As Reddit creates new ways to allow brands to engage with these passionate communities, it’s going to be an increasingly important part of any brand’s media strategy.”

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