Reddit seeks $6.5bn valuation from float

Social media platform plans to raise $748m through sale of 22m shares

Reddit has revealed that it is aiming for a $6.5bn valuation when it floats on the New York stock exchange towards the end of this month. This seems a lot for a company which is still posting significant losses.

The company made a corporate filing with the US Securities and Exchange Commission yesterday, which indicated that it planned to raise up to to $748m by selling 22m shares valued at between $31 and $34 each.

Reddit also said that it had set aside 1.76m shares for certain Reddit users, employees and families of employees and directors.

The flotation will be the largest of a social media company since the IPO of Pinterest in 2019 which hit a value of $16bn on its stock market debut.

Reddit, first filed for an IPO in 2021, at a much higher value of $10bn but chose to put this on ice due to economic uncertainty and the fact that technology stocks and valuations were returning to earth after pandemic hypergrowth.

At it's heart, Reddit has a simple (and familiar sounding) model. Users post content without charge and companies pay to advertise to users. It's not complicated, but Reddit, despite being almost two decades old, remains a loss-making venture, to the tune of nearly $91m last year. In the previous year Reddit lost $159m.

When viewed through this lens, a valuation north of $6bn seems optimistic. But like so many others, Reddit are betting the farm on AI. More specifically, it's betting the farm in data licencing agreements with companies who want all that lovely data to train their LLMs.

In it's IPO prospectus Reddit made the following comment:

"In January 2024, we entered into certain data licensing arrangements with an aggregate contract value of $203.0 million and terms ranging from two to three years," Reddit says.

"We expect a minimum of $66.4 million of revenue to be recognized during the year ending December 31, 2024 and the remaining thereafter."

It was confirmed in February that Google has entered into a licencing agreement with Reddit worth approximately $60mn per annum. It's also worth noting OpenAI's Sam Altman's 8.7% stake in Reddit, although no deal with OpenAI has been confirmed.

AI vendors have been effectively forced into data licencing agreements to swerve a torrent of lawsuits coming towards them over copyright violation, the most well-known of which is The New York Times action against Microsoft/OpenAI which was filed at the end of last year.