Reddit opens up 38%, as shares begin trading

SAN FRANCISCO — Reddit shares opened up about 38% Thursday in their first day of trading, in a sign of investor eagerness that set the stage for more tech companies to reach the stock market this year.

Shares began trading on the New York Stock Exchange at $47, after pricing at $34 on Wednesday in the social media company’s initial public offering, and continued to rise. The pop put Reddit’s market capitalization around $9.2 billion, less than the $10 billion it was valued at in the private markets three years ago.

The listing is a milestone on a long road for Reddit, which was founded in 2005 in San Francisco. The site is best known for its message boards, where users can congregate on forums known as subreddits to research and discuss everything from parenting to power washing to Labrador retrievers. Over the years, the company struggled through many of the issues facing the largest social media firms, such as how to moderate speech and make money.

“The process of becoming a public company has made us so much better,” Steve Huffman, Reddit’s CEO, said in an interview Thursday morning. “We’re shipping better products, faster.”

Reddit’s performance signaled that the public markets have an appetite for more tech offerings after public listings fizzled amid rising interest rates and economic uncertainty. Just over 100 companies went public in the United States last year, roughly one-quarter of the number of companies that went public in 2021, according to data compiled by Renaissance Capital, which manages IPO-focused exchange traded funds.

Reddit’s IPO was not guaranteed to be a success. The company is growing, but it is unprofitable and has faced questions about the strength of its advertising and data-licensing businesses.

On Wednesday, Astera Labs, an artificial intelligence company, rose 72% in its first day of trading on the stock market, which combined with Reddit’s debut could encourage other private tech companies to go public. Those include Rubrik, a cloud data management company; SeatGeek, a ticketing provider; and ServiceTitan, a software company for home services.

A key question for tech companies mulling an offering is whether they must moderate their valuation expectations. Many private tech companies that raised money during an euphoric investing environment have since raised money at lower valuations.

Given that backdrop, some larger well-funded technology companies, including the payments processor Stripe, appear to be in no rush to go public. Stripe, which is based in San Francisco, said last month that it had bought shares from its employees, allowing them to partially cash out of their stake in the company without an IPO.

Reddit’s first day of trading was also a test of whether it would become a “meme stock,” which is when a company attains a herdlike following across social media and its stock can be promoted or pilloried for the financial gain of its followers. One subreddit, WallStreetBets, has developed a powerful role in the financial markets as a promoter of meme stocks, serving as a place where traders coalesce, trade tips and talk.

In its IPO, Reddit offered up to 8% of its shares to Redditors, the people who regularly use the site, an unusual move to reward some of its most loyal users.

Typically, large financial institutions can buy into an IPO the evening before the company lists. Those institutions are the ones that can most benefit from selling into the “pop” of interest from retail investors the next day.

“It’s a way of creating loyalty,” said Jay Ritter, a professor of finance at the University of Florida. “The company is saying, ‘Look, we want the people who have been successful to get some benefits.’”

That also creates risks. Shares of Robinhood, a stock trading and investment app that decided to sell as much as one-third of its offering to retail traders via its own app in its own IPO, closed down 8% its first day trading when it went public in 2021.

One of the biggest winners of Reddit’s public offering was the Newhouse family, the media dynasty that controls Condé Nast through its holding company, Advance Publications. The Newhouses were set to reap a windfall of roughly $1.4 billion from the approximately 30% stake they own of Reddit. Other major shareholders include Tencent, the Chinese internet company, and Sam Altman, the CEO of OpenAI.

“We did it, mom,” Alexis Ohanian, one of the site’s co-founders, said in a social media post Thursday. Ohanian, who previously was the chair of Reddit’s board, is no longer a principal shareholder, nor does he have an operational role at the company. (He and Huffman parted ways after differences over how discriminatory speech should be moderated on the site.)

From the floor of the New York Stock Exchange on Thursday, Huffman pointed to the company’s improved cadence of adding new features over the last year and improving the tools for moderators, the thousands of volunteer users who oversee the site’s subreddits.

Those changes — and the specter of more to come — are still a source of tension for many of Reddit’s more than 70 million daily users. Many have worried about how the pressures of quarterly reports and the demands of Wall Street could affect how the site functions, saying that profit over products could harm what made Reddit, Reddit.

“It’s a natural feeling, and one we share,” Huffman said in Thursday’s interview. “But we love Reddit; that’s the emotion we all have in common. And it’s important to us to treat Reddit with respect as we move ahead.”

He added, “But there’s only so much telling I can do. Now we have to show it.”

This article originally appeared in The New York Times.