Reddit’s pre-IPO roadshow to kick off next week

The roadshow for Reddit’s closely watched public debut on the New York Stock Exchange will start on Monday, as it prepares to begin trading the following week in a tech listing that will set the tone for the market in 2024.

The social media platform is trying to secure an anchor investor as it pitches its fast-growing advertising business and the promise of revenues from selling its data. Reddit plans to price its initial public offering on March 20 and start trading the following day, according to two people familiar with the matter.

The company is targeting between $31 and $34 a share, translating to a valuation of as much as $6.5bn. Reddit and the NYSE declined to comment.

If Reddit prices as planned, the listing will give it a significantly smaller value than the $10bn it reached in its last private valuation in 2021. US IPO activity has been depressed for more than two years, and even those that have managed to go public recently have had to offer investors substantial valuation discounts compared with listed rivals.

One IPO banker, who is not involved in the deal, said that the listing would “not define the entire IPO market — but a bad performance certainly wouldn’t help as we think about tech IPOs in general”.

Reddit would be looking to entice an “anchor” or “cornerstone” investor who will agree to have their names published in the prospectus in exchange for being guaranteed a large allocation of shares, two people said. Such investors have become increasingly common in the tricky fundraising environment.

Some of Reddit’s largest existing shareholders include Fidelity, the $4.5tn asset management group, and China’s Tencent. 

For the NYSE, Reddit marks its most high-profile tech listing since the height of the 2020-21 IPO boom. Owned by Intercontinental Exchange, NYSE is expected to pull out all the stops and encourage more companies to follow suit.

Reddit’s choice to list on NYSE surprised some observers as rival Nasdaq has long had a reputation as the default venue for high-profile tech groups. But NYSE has quietly carved out a niche hosting social media groups.

Its pitch to encourage Reddit to choose the so-called big board included a substantial marketing package. Both traders and the historic trading floor will be decked out in Reddit’s white and orange colour scheme, according to people familiar with the plans.

Listings on NYSE are less automated than those on Nasdaq, with a dedicated human market maker helping to manage liquidity and reduce volatility. Trading firm GTS will be the designated market maker for Reddit, having performed the same role with Twitter, Pinterest and Snap. Morgan Stanley and Goldman Sachs are the lead bankers on the deal.

Patrick Murphy, a partner at GTS, said: “Twitter, Snap and Pinterest all had successful prints, all closed above the pricing, all traded 100 per cent of their float on the first day and all traded on the NYSE. If you do a real in-depth case study on mitigating volatility, it makes sense to pick the DMM model.”

As the birthplace of “meme stocks” and the notorious WallStreetBets trading forum, Reddit warned in its prospectus that trading in its shares could be particularly volatile.

The business, spun out as an independent subsidiary by Condé Nast parent company Advance Publications in 2011, has not made a profit in its 19-year history, and recorded a $91mn loss in 2023.

It had $800mn in sales last year, coming largely from advertising. Reddit will tell potential investors that it is building an advertising business similar to Pinterest, whereby it does not gather much personal data about its users and instead targets advertising by interest and intent, according to one person familiar with the plans.

On top of advertising, Reddit is attempting to lure potential investors with the promise that licensing user data to artificial intelligence groups looking to train their large language models will be a lucrative business. It has already struck a deal with Google worth about $60mn annually.