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Reddit targets valuation as high as $6.5bn in IPO

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Reddit is seeking a valuation of as much as $6.5bn in its upcoming initial public offering, in what would mark a significant reduction from its last private valuation in 2021. 

The social media platform was targeting between $31 and $34 per share, according to two people familiar with the situation, which would give it an equity value of about $6bn-$6.5bn on a fully diluted basis. The Wall Street Journal first reported the price targets.

The platform, known for its freewheeling discussion forums such as the WallStreetBets trading group, was valued at $10bn in its most recent private fundraising in 2021, when tech stocks were buoyed by a boost in online engagement during pandemic stay-at-home orders. 

However, as pandemic restrictions lifted and interest rates rose, tech stocks slid — prompting Reddit to pause its IPO plans after filing confidentially to float at the end of 2021. 

Some of the proceeds of the IPO will go directly to Reddit through the sale of new shares. A portion would also go to existing shareholders, including employees, according to one person familiar with the matter. However, those who sell shares in the initial offering would be barred from further sales for a period following the deal, the person said. 

The company has also previously said it plans to allot a portion of its shares to retail investors and loyal users of its social network.

Reddit may yet adjust its price range ahead of its roadshow, which could begin within weeks, with a potential public listing as early as this month. The company declined to comment.

Reddit has not yet revealed how many shares will be outstanding immediately following the offering. That means its initial market capitalisation could be materially lower than the fully diluted range, which is based on the assumption that any outstanding options are exercised and any associated targets are hit.

Fidelity, which was one of the lead investors in Reddit’s 2021 fundraising, had valued its stock at more than $35 per share as recently as last August, according to regulatory filings. The Fidelity Growth Opportunities Fund cut its internal valuation to $31.41 per share as of the end of November, marking a near-50 per cent discount compared with August 2021.

Reddit’s listing will represent a significant test of investor appetite, as the market for IPOs in the US slowly thaws after two years of moribund activity.

Most of the large companies that have listed over the past year have put a strong emphasis on profitability. By contrast, Reddit, which is trying to build up a largely advertisement-based business, has cumulative losses of over $700mn, including a net loss of $90.8mn in 2023. It warned in its prospectus that it “may never achieve profitability”.

Steve Huffman, Reddit’s chief executive, holds restricted stock that would vest if it attains a $5bn market capitalisation after the offering, according to the company’s prospectus.

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