Reddit targets $6.5 Billion Valuation for IPO

Reddit’s I.P.O. is getting close, with the latest reports indicating that the forum-based platform is now targeting a valuation of $6.5 billion for the offering.

Which is significant, though it’s also a significant drop on the $15 billion price tag that the Reddit team was initially targeting for the company when the I.P.O timeline was first reported late last year.

As per CNBC:

“[Reddit] and its existing shareholders plan to sell about 22 million shares at a range of $31 to $34 per share […] Reddit has also set aside roughly 1.76 million shares for certain users and moderators, known as Redditors, who want to participate in the IPO and have created their user accounts before Jan. 1.”

The latter being part of Reddit’s recently announced plan to mitigate concerns about the level of user contribution to the platform, with subreddit communities still heavily reliant on volunteer moderators, which could present an operating risk. By involving these users in the share sale, that’ll provide direct incentive for them to help maximize the performance of the app, and keep contributing at the same levels as normal.

And without that measure, mods could get very angsty about making money for the app.

The $6.5 billion target is difficult to justify, given that Reddit is currently not profitable, and only brought in $800 million in ad revenue in 2023. At regular market valuation, that would put Reddit’s value at around $4.5 billion at best, but the platform also recently signed a data sharing deal with Google, which it will also be looking to factor into its pricing.

Though I’m not sure that it’ll have many takers, especially when you also consider the recent track record for I.P.O. listings.

Reddit claims that it currently serves over 73 million daily active users, and is growing steadily over time.

Though Reddit also claims to have 500 million monthly visitors, which is a wild variation in DAU/MAU stats.

In general, most social platforms see a 1:1.8 ratio of daily/monthly users, with some variance. Facebook, for example, has 2.11b DAU and 3.07b MAU, at a variance of x1.45, while Snapchat has 414m DAU/800m MAU (x1.9).

Reddit claims to have a variation of x6.8 DAU to MAU, which is way out of proportion for industry averages.

But nevertheless, Reddit has proven significantly valuable as a complementary insights platform, providing real, human response data on a wide range of subjects and products.

Reddit will be hoping that proves attractive to investors when it makes its market debut in the coming weeks.