Inside Reddit’s IPO Filing: What We Learned

Third-Party Content. Provided for informational purposes only. Not investment advice or a recommendation to buy or sell any security. See disclosure here.

The platform that has hosted numerous communities and played a pivotal role in one of the most significant bull runs in stock market history is now preparing to go public. In my previous article, which discussed IPO trends in 2023 and expectations for 2024, I highlighted Reddit as one of the most highly anticipated IPOs of the year. On February 22, company officially filed its S-1, confirming the earlier rumors about its plans to go public. The company has applied to list its shares on the New York Stock Exchange under the ticker symbol ‘RDDT.’

In this article, I will delve into the most noteworthy details revealed in Reddit’s recently filed S-1 document as it begins the process of going public.

Reddit in Numbers

Communities: Platform has more than 100,000 active subreddits, including over 500 subreddits each with at least one million subscribers, covering a wide variety of topics.

User growth: S-1 filing reveals that the number of Daily Active Uniques (DAUq) reached a new high of 73.1 million in Q4 of 2023, representing year-over-year growth of 27%.

Source: S-1 Filing

Revenue and monetization metrics: Company recorded revenue of $804.0 million, as compared to revenue of $666.7 million for the year ended December 31, 2022, representing an increase of 21% compared to the prior year period.

Reddit generated around 98% of its revenue from advertising, with a significant portion coming from a small group of advertisers. The top ten contributors accounted for approximately 26% of the total revenue.

The average revenue per user (ARPU) has been on a general upward trend since the first quarter of 2021, with the exception of a 2% year-over-year decline in ARPU during the last quarter of 2023. The decline in global ARPU compared to the prior year period was driven primarily by higher DAUq growth, particularly in logged-out users, which have a lower monetization opportunity than logged-in users.

Reddit APRU

Source: S-1 Filing

Profitability and liquidity: Based on the information presented in its S-1 filing, Reddit has not yet achieved profitability. The company’s income statement shows that Reddit incurred losses of $159 million and $91 million in 2022 and 2023 respectively.

As of December 31, 2023, company had $1.2 billion in cash, cash equivalents, and marketable securities.

Reddit Owns Crypto

The company disclosed that it had allocated a portion of its surplus cash reserves to Bitcoin and Ether investments. Furthermore, Reddit also accepted Ether and Matic as payment for certain virtual goods sales. The income derived from these sales, in terms of Ether and Matic, was deemed immaterial.

Additionally, company has acquired and maintains digital assets specifically for its product and engineering teams’ use, with usage restricted to certain applications.

The company clarified that, aside from Bitcoin and Ether, it does not maintain any other digital assets for its treasury operations.

OpenAI’s CEO Sam Altman Among Top Stakeholders

S-1 filing reveals that entities associated with Sam Altman own around 8.7% of the company’s outstanding shares, acquired for approximately $60 million.

The exact market valuation at which Reddit plans to go public is still unknown. The company was previously assessed at $10 billion during a private funding round in 2021. Current speculation hints at company aiming for a $5 billion valuation for its Initial Public Offering (IPO), potentially valuing Altman’s investment close to $435 million.

In addition to Reddit’s IPO, Sam Altman is also involved in another public offering through a special purpose acquisition company. His SPAC, AltC Acquisition Corporation has announced a merger with Oklo, a nuclear energy company, in a deal valuing Oklo at $850 million. The merger is expected to close in early 2024. For a deep dive into this transaction, you can find my article here.

Reddit and AI

The company asserts that its data plays a critical role in the creation of current AI technology and many Large Language Models (LLMs). The team believes that the conversational data and knowledge on Reddit will continue to be important for training and improving LLMs.

As stated in the S-1 filing, the team is also in the process of monetizing a new opportunity in data licensing, which involves granting third parties access to search, analyze, and utilize data on the platform. In January 2024, the team signed data licensing agreements with a total contract value of 203 million, with terms ranging from two to three years. It is expected that a minimum of 66.4 million in revenue will be generated in the year 2024 from these agreements.

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Disclaimer: Third party content is provided for informational purposes only and should not be construed as an offer to sell or a solicitation of an offer to buy or sell any security. Third party content is not intended to serve as a recommendation to buy or sell any security and is not intended to serve as investment advice. Third party content creators are not affiliated with BBAE Holdings LLC, (“BBAE”) Redbridge Securities LLC (“Redbridge Securities”) or BBAE Advisors LLC (“BBAE Advisors”). All investments involve risk, including the possibility of total loss of principal. For additional important information, please click here.

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