Reddit's Oversubscribed IPO Points to Strong Market Debut Amidst Adjusted Valuation Expectations

Reports from sources familiar with the matter indicate that Reddit's initial public offering (IPO) is currently oversubscribed between four and five times. This suggests a strong likelihood that the social media platform will achieve its targeted $6.5 billion valuation. While an oversubscription doesn't guarantee a stellar performance in the stock market debut, it positions Reddit to meet or exceed its projected price range of $31 to $34 per share when it prices the IPO in New York on Wednesday.

The sources, who preferred anonymity due to the confidential nature of the information, revealed that the IPO's marketing efforts are ongoing. Meanwhile, a spokesperson for Reddit declined to provide comments.

Having adjusted its valuation expectations following a $10 billion private fundraising round in 2021, Reddit's IPO aims to raise up to $748 million. Despite boasting a dedicated user base, the platform has faced financial losses annually since its inception in 2005. Its commercial success has trailed behind contemporaries like Meta Platforms' Facebook and Twitter (now known as X).

Reddit's unique focus on niche topics and its relatively lax content moderation policies have raised concerns among advertisers. The platform relies on volunteer moderators from its user community to oversee content, a system that saw disruption in 2023 when several moderators protested Reddit's decision to charge third-party app developers for data access.

With over 100,000 online forums known as "subreddits," Reddit facilitates discussions on a wide array of subjects, as described by co-founder and CEO Steve Huffman. The platform gained significant attention in 2021 during the "meme-stock" saga when retail investors coordinated on the "wallstreetbets" subreddit to invest in heavily shorted stocks like GameStop.

In a bid to attract retail investors, Reddit has reserved 8% of its total shares for eligible platform users and moderators, select board members, and the friends and family of its employees and directors. According to regulatory filings, Reddit boasted an average of 73.1 million daily active "uniques" - users who engage with the platform at least once a day - in the three months ended Dec. 31, 2023.