Reddit files for IPO, the biggest beneficiary could be Sam Altman

The social network Reddit has submitted a long-awaited application for an initial public offering (IPO) to the U.S. Securities and Exchange Commission. The company plans to trade on the New York Stock Exchange under the ticker ‘RDDT’. Its market debut, expected within the next month, will be the first major tech IPO of the year and the first IPO for a social network since Pinterest went public in 2019.

Reddit claims to have generated 804 million dollars in revenue from advertising sales last year, which is a 20 percent increase compared to 2022. The company, founded in 2005 by tech entrepreneurs Alexis Ohanian and Steve Huffman, has recorded losses since its inception, reporting a net loss of 90.8 million dollars last year. For comparison, in 2022, they recorded a loss of 158.6 million dollars.

Reddit is one of the most visited social networks both in the U.S. and Europe, including Croatia, but despite this, the online advertising space is incomparable to that of tech giants like Meta, i.e., Facebook, and Alphabet, i.e., Google.

This social network has over 100,000 communities and 73 million daily active users, with an average revenue per user in the U.S. of 5.51 dollars in the last quarter of 2023. Globally, the average revenue per user was 3.42 dollars, a decrease of two percent compared to the previous year.

AI, gaming, and cryptocurrencies

Reddit has decided to upgrade its search capabilities and plans to use artificial intelligence to enhance its business. They are also in the process of developing and monetizing a data licensing business that would allow third parties to access and search data on the platform.

In line with this, they signed a contract with Google this week, granting it access to their data to help train its AI models, among other things. This is an interesting step considering that in June last year, several moderators locked communities, or subreddits, as part of a ‘blackout‘ in protest against the company’s decision to raise the fees that some third-party developers pay for using the application programming interface (API). Reddit stated at the time that the price change was necessary because many large tech companies use their data to train large language models.

– In January, we entered into certain data licensing agreements with a total contract value of 203 million dollars – Reddit stated regarding data licensing.

In addition to artificial intelligence, it seems that Reddit is exploring a business strategy similar to that of Roblox, which generates most of its revenue from digital sales on its platform. As Reddit aims to introduce more features to create a user economy, many speculate, according to what is written in the IPO application, that the social network could also enter the gaming segment.

Additionally, the application revealed that the company has invested in several cryptocurrencies, including bitcoin and ethereum, but the company clarified that it holds cryptocurrencies only as crypto assets for treasury purposes and does not intend to invest in other cryptocurrencies in the future.

Furthermore, Reddit will offer three classes of shares with different voting rights. Class A shares will have one vote per share. Class B shares will have ten votes per share and can be converted into one Class A share at any time, while Class C shares have no voting rights.

Users uninterested

While it is interesting to follow what is happening with Reddit ahead of its stock market debut, it seems that users are not particularly interested in buying shares. While many write that they ‘do not want to eat where they write nonsense’, others claim they would buy shares ‘only if someone sells them at half price’, but one of the biggest beneficiaries of Reddit’s IPO could be OpenAI CEO Sam Altman.

Altman is currently the third-largest shareholder of this social network with an 8.7 percent stake, Reddit revealed in its IPO application. Although the application does not specify the price at which Reddit will seek to sell shares in the upcoming IPO, Bloomberg reported that the company is seeking a valuation of at least five billion dollars. This would mean that Altman’s stake, consisting of 789,456 Class A shares and 11.4 million Class B shares with voting rights, would be worth approximately 435 million dollars.

Altman’s connection to Reddit dates back to 2014 when he first invested in this social network, and he served as a board member until 2022. During that time, Reddit went through numerous internal changes related to rotating CEOs, and at one point in 2014, Altman even sat in the CEO’s chair. However, he held that position for only eight days.

– While my eight days as CEO of Reddit were somewhat fun, I am glad it is coming to an end, and I am sure the new team will do a far better job and elevate the company to a high level – Altman said when stepping down from that position.

Besides Altman, other major shareholders of the company include Steven Newhouse from Advance Magazine Publishers, who holds about 30 percent of the shares, and the Chinese tech giant Tencent, which has an 11 percent stake. Co-founder and CEO of Reddit Steve Huffman has a 3.3 percent stake in the company.