Reddit Inc. filed for an initial public offering, revealing the social media platform’s shrinking losses and helping to propel a still-tenuous resurgence in U.S. listings.

The San Francisco-based company, in what is set to be one of the biggest listings of the year, filed Thursday with the U.S. Securities and Exchange Commission to move ahead with an IPO, more than two years after first submitting its plan confidentially.

Reddit won’t disclose proposed terms for the IPO, including its valuation in a listing, until a later filing. The company has been advised to consider a valuation of at least US$5 billion in an IPO and could begin marketing the shares as soon as March, Bloomberg News has reported.

Reddit, founded in 2005, averaged 73.1 million daily active unique visitors in the fourth quarter, according to the filing. It became an icon of the so-called meme-stock era after a forum on the site, WallStreetBets, jolted the stock market.

The company reported a net loss of $90.8 million on revenue of $804 million in 2023, compared with a net loss of $158.6 million on revenue of $666.7 million a year earlier.

Amer Sports, Arm

The company is a high-profile addition to the year’s roster of newly and soon-to-be public companies. Thirty-four firms have raised more than $7.1 billion in IPOs on U.S. exchanges since Jan. 1, according to data compiled by Bloomberg. The biggest of those listings was the $1.57 billion offering by Amer Sports Inc. in January.

Shares of those companies have gained more than 14 per cent on a weighted average basis. That contrasts with semiconductor designer Arm Holdings Plc and three other companies that went public in September and October and fell below their IPO prices, putting a quick end to an anticipated rebound in listings after a two-year slowdown.

Arm, whose $5.23 billion offering was the biggest of the year, has since rocketed 152 per cent. Excluding Arm, though, the 166 companies that raised about $21 billion last year have gained an average of only 13 per cent, the data show.

Market test

Reddit could be 2024’s first major test of the market for a technology startup backed by venture capital. The company, which has raised $1.38 billion, was valued at $10 billion after a 2021 financing round, according to data provider PitchBook. Its filing follows by one day that of another such startup, Astera Labs Inc.

Its listing will be watched closely by IPO candidates such as Microsoft Corp.-backed data security start up Rubrik Inc. and health-care payments company Waystar Technologies Inc.

Reddit co-founder and Chief Executive Officer Steven Huffman said in a signed letter included in the filing that the company has many opportunities to grow both the platform and the business.

Advertising & AI

“Advertising is our first business, and advertisers of all sizes have discovered that Reddit is a great place to find high-intent customers that they aren’t able to reach elsewhere,” Huffman said. “Advertising on Reddit is rapidly evolving, and we are still in the early phases of growing this business.”

Reddit said it’s in the early stages of allowing third parties to license access to data on the platform, including to train artificial intelligence models. The company said that in January it entered into data licensing arrangements with an aggregate contract value of $203 million and terms ranging from two to three years. It expects a minimum of $66.4 million of revenue from those agreements this year, according to the filing.

On Thursday, Reddit separately announced a deal with Alphabet Inc.’s Google, allowing Google’s AI products to use Reddit data to improve their technology. Large language models often need vast troves of human-generated content to improve.

The company will set aside shares in the IPO to be bought by users and moderators who created accounts before Jan. 1, according to the filing. The amount of stock to be allotted in the directed share program will be disclosed later. Those shares won’t be subject to a lockup period, meaning the owners can sell them on the opening day of trading.

That program could be a way for Reddit to generate enthusiasm for the stock, said Greg Martin, co-founder of Rainmaker Securities. Based on the company’s revenue, Martin said he expects Reddit to have a hard time reaching the $4.8 billion valuation it’s traded at in the private secondaries market.

“It’s clear that sophisticated investors won’t be excited about buying into the public debut, likely explaining why Reddit will be offering shares to their users, to have stock supporters and get fans to prevent a negative meme stock phenomenon,” Martin said.

Newhouse ownership

Reddit’s largest shareholder is Advance Magazine Publishers Inc., part of the Newhouse family publishing empire that owns Conde Nast, which bought Reddit in 2006 and spun it out in 2011. It holds 34% of the voting power before the offering, the filing shows. 

Huffman owns shares giving him 3.5 per cent of the voting power. That includes Class B shares that will have 10 votes each compared with one each for the Class A shares to be sold in the IPO, the filing shows. Huffman also has a voting proxy agreement with Advance.

Other large shareholders include Chief Operating Officer Jennifer Wong, as well as FMR LLC and entities affiliated with OpenAI Chief Executive Officer Sam Altman, Tencent Holdings Ltd., Vy Capital and Quiet Capital and Tacit Capital, according to the filing.

Huffman’s fellow co-founder, venture capitalist Alexis Ohanian, isn’t listed among the investors with stakes of five per cent or more and isn’t named elsewhere in the filing.

Reddit has made investments in cryptocurrencies, though the digital assets held in treasury are limited to those recognized by the SEC as likely not being securities, the filing shows. It invested some of its excess cash reserves in Bitcoin and Ether, and acquired Ether and Matic as a form of sales payment for some virtual goods.

The offering is being led by Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of America Corp. The company plans for its shares to trade on the New York Stock Exchange under the symbol RDDT.