Reddit Stock Soars 30% in Debut Week, A Positive Sign for Tech IPOs

Reddit's shares experienced a significant increase of approximately 30% to reach $59.80 at the close of the market's trading session on Monday. This surge follows the company's recent initial public offering (IPO) which garnered around $750 million, with approximately $519 million being accrued by the company.

Successful IPO Debut

Upon its stock market debut, Reddit observed a remarkable 48% surge in its shares as it commenced trading on the New York Stock Exchange under the ticker symbol "RDDT." This surge led to substantial earnings for moderators, users (known as Redditors), corporate insiders, and their acquaintances, as they collectively made millions of dollars. Notably, OpenAI CEO Sam Altman witnessed a surge in his stake from $200 million to over $613 million as a result of the IPO.

Notable Market Performance

Reddit's IPO coincided with Astera Labs' shares soaring by 72% on the day of the data center hardware company's public market debut on the Nasdaq. As the first major social media company to go public since Pinterest's IPO in 2019, Reddit's stock debut was closely observed by investors to assess the potential resurgence of the IPO market, which had experienced a prolonged lull due to various factors such as high inflation and tepid market responses to numerous 2023 IPOs, as well as concerns regarding the global economy.

Industry Implications and Investor Appetite

Lo Toney, the founding managing partner of Plexo Capital and a shareholder in Reddit, expressed optimism regarding Reddit's IPO, stating that it signifies a positive development for not only Reddit but also for the broader tech industry, potentially setting the stage for future IPOs. Toney noted the prevailing investor appetite during Reddit's roadshow and emphasized the market's signaling of a demand for more companies to enter the public markets.

Challenges and Valuation Concerns

Despite the positive outlook, Toney highlighted the need for specific dynamics to unfold, including the entry of additional companies into the public market, before conclusively affirming the opening of the IPO floodgates. He also underscored the hesitation of some startups, which, having raised substantial private funding, might not be inclined to promptly pursue an IPO to raise further capital. Additionally, Toney pointed out that certain startups with lofty private valuations might harbor reservations about going public at a potentially lower valuation than their latest private funding round.

Valuation Overview

Reddit, which previously attained a private market valuation of $10 billion in 2021 during its last funding round, was evaluated at approximately $6.5 billion based on its IPO price of $34 per share.