Social media platform Reddit's shares ended their first day of trading in New York up 48%, suggesting that investor appetite for initial public offerings of promising yet loss-making companies could be returning.
Reddit, which has not turned an annual profit since
launching in 2005, lured investors by positioning its content as training
grounds for artificial intelligence (AI) programs. Reuters reported last month
that Reddit struck a data licensing deal with Google worth about $60 million a
year.
While Reddit still relies on advertising for the vast
majority of its revenue, it touted AI in its IPO marketing roadshow as an area
of growth. It also disclosed last week that the U.S. Federal Trade Commission
is looking into its AI data licensing deals.
"At the core we are a growth company. Achieving our
mission means that we want to grow users and community," said Jen Wong,
Chief Operations Officer at Reddit.
Shares of the San Francisco-based company opened at $47 on
the New York Stock Exchange on Thursday after pricing at $34 in the IPO, the
top of the company's indicated price range. They ended trading at $50.44.
The IPO valued Reddit at $6.4 billion, and the company and
its selling shareholders raised $748 million. Reddit was valued at $10 billion
in a private fundraising round in 2021, and the strong stock market reception
indicated that the company may not have needed to curb its valuation
expectations so much to get the IPO off the ground.
Reddit's entry into public markets has been a long time
coming. It confidentially filed for an IPO in December 2021, but a stock rout
caused by Russia's war in Ukraine and the Federal Reserve's hiking of interest
rates froze much of the IPO market and pushed it to delay.
Josh White, assistant professor of finance at Vanderbilt
University, said Reddit's IPO showed investors were willing to ignore the
company's losses because of its potential growth - a trend not seen for at
least three years.
"We don't get many large tech IPOs. Those tend to be
very popular because it's hard to buy that kind of growth," White said.
Reddit's popularity rose to new heights during the
"meme-stock" saga of 2021 in which a group of retail investors
collaborated on its forum "wallstreetbets" to buy shares of highly
shorted companies like GameStop.
As part of its plan to reward users, Reddit has reserved 8%
of the shares on offer for eligible users and moderators, certain board
members, as well as friends and family members of employees and directors.
It also offered some shares to retail investors through
online brokerage platforms Robinhood, SoFi, Morgan Stanley Wealth Management
and Fidelity Brokerage Services.
But the move is fraught with risks, analysts have said.
Typically shut out of bidding in an IPO, retail traders eager to gain exposure
to a newly-listed company buy shares only when they start trading.
Allowing early access to the IPO could dampen some demand.
Such buyers are also not under a lock-up period and could choose to sell when
the stock starts trading, potentially increasing the price volatility.
"I don't know one company which really benefits from
allocating shares to their users," said Alan Vaksman, founding partner at
investment firm Launchbay Capital.
Stocktwits.com, the social media firm that analyses posts
and message volumes on its platform related to a company's ticker symbol,
showed retail sentiment for Reddit was "extremely bullish."
But the discussion on Reddit's "wallstreetbets"
forum was more mixed, with some users saying they would short the stock after
it starts trading.
0 comments:
Post a Comment