Reddit Inc. shares eased back from highs Thursday after jumping as much as 67 per cent above their initial public offering price, a day after the social media company and its shareholders raised US$748 million.

The San Francisco-based company’s shares traded on Thursday at $49.39 each as of 3:13 p.m. New York time, 5.1 per cent above their opening price of $47. The trading comes after Reddit and some of its stockholders sold 22 million shares at $34 each, in an offering that priced at the top of a marketed range.

At the current price, Reddit has a market value of $7.85 billion based on the outstanding shares listed in its filings with the US Securities and Exchange Commission. Including stock options and restricted share units, Reddit’s fully diluted valuation is more than $9 billion. Some analysts argued before the pricing that the company merits a valuation around the $10 billion it achieved in a 2021 funding round.

Reddit’s IPO, the fourth largest this year, is a high-profile addition to 2024’s roster of newly and soon-to-be public companies. The biggest of those listings has been the $1.57 billion offering by Amer Sports Inc. in January.

The listing follows the $713 million Astera Labs Inc. offering by one day. Astera, a semiconductor connectivity company focused on artificial intelligence, priced its shares above its marketed range and then jumped 72 per cent in its trading debut Wednesday. It climbed a further 15 per cent on Thursday, and has more than doubled since the IPO.

The IPO was led by Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of America Corp., according to Reddit’s filings. Reddit’s shares are trading the New York Stock Exchange under the symbol RDDT.

AI licencing

Like Astera, much of the investor enthusiasm for Reddit can be attributed to its business related to AI.

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 filings.

Reddit also has 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.

“Large language models need data,” Reddit Chief Operating Officer Jennifer Wong told Bloomberg TV. She described the company’s 19 years worth of “human experience organized by topic, with moderation and relevance — that is incredibly important to building both a chat capability and the freshness of information. That is an area where we see opportunity.”

Original human thoughts and ideas are set to become more valuable as content becomes increasingly generated by AI, Wong said.

“If you think about it, a new car comes out — who is going to review it?,” she said. “A real-life family of six can tell you what it is like to drive that car. That is always going to be valuable.”

Two-year slog

San Francisco-based Reddit’s more than two-year slog to listing reflects the ups and downs of the market, beginning with its initial confidential filing in 2021, when IPOs on US exchanges set an all-time record of $339 billion, according to data compiled by Bloomberg. IPOs in the US have tumbled since then, reaching only $26 billion last year, the data show.

Reddit’s IPO tops big listings in September by U.S. technology companies Instacart, which raised $660 million, and Klaviyo Inc., with a $659 million offering. While those IPOs, along with British chip designer. Arm Holdings Plc’s $5.23 billion offering — 2023’s biggest — failed to launch a listings rush, the market has warmed since then.

About $8.8 billion has been raised this year via IPOs on US exchanges, the data show. That’s an increase of around 152 per cent at this point last year.

The strong showings by Reddit and Astera provide a market temperature check for other IPO candidates such as Microsoft Corp.-backed data security startup Rubrik Inc. and health-care payments company Waystar Technologies Inc.

Losses shrinking

Founded in 2005, Reddit averaged 73.1 million daily active unique visitors in the fourth quarter, according to its filings. The company reported a net loss of $91 million on revenue of $804 million in 2023, compared with a net loss of about $159 million on revenue of $667 million a year earlier.

About 8 per cent of the 22 million shares sold in the IPO were reserved for Reddit users and moderators who created accounts before Jan. 1, as well as some board members and friends and family of some employees and directors. Those shares aren’t subject to a lockup, meaning the owners can sell them on the opening day of trading, according to Reddit’s filings.

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.

Reddit co-founder and Chief Executive Officer Steve Huffman said the company has many opportunities to grow both the platform and the business, according to a signed letter included in the filings.

“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.”

Huffman’s shares give him 3.3 per cent of the voting power after the offering, the filings show. 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 filings show. Huffman also has a voting proxy agreement with Advance.

Other large shareholders include 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 filings.

In all, Huffman and those investors hold about three-quarters of the shareholder voting rights.

Huffman’s fellow co-founder, venture capitalist Alexis Ohanian, isn’t listed among the investors with stakes of 5 per cent or more and isn’t named elsewhere in the filings.