Reddit’s IPO signals thawing tech winter, but listing game has changed

Reddit’s IPO in March made it the first major company to go public in 2024. It probably wouldn’t be an exaggeration to say that it was the listing that had the most hype in the past 18 months.

Many saw Reddit’s performance as a harbinger of investor appetite for new public companies. The social media giant’s listing comes on the heels of what was one of the worst years for IPOs in recent memory – 2023 only had 154 listings in the US, down by 85% from the peak of 2021.

Image credit: Timmy Loen

A few months on, it’s clear that Reddit has lived up to the hype. The firm’s stock price popped more than 50% on its first day being public, and nearly three months since listing, the stock has almost doubled from its debut price of US$34 to over US$60.

Does this signal the reopening of IPO markets more broadly and an end to the tech winter? In some ways, it does. However, the focus for public markets has changed since the heady days of 2021.

Feast to famine

There is an argument to be made that the paucity of IPOs was to be expected after the tremendous frenzy in 2021 and 2020. In the US, 1,035 companies listed in 2021, an all-time high that was 120% greater than 2020, which had already been a record year.

In comparison, the past two years were sluggish, with the fourth quarter of 2023 being the slowest quarter for IPO listings since 2012. Many firms also recorded a large drop in value after they went public in those years.

This was a major concern for VCs and fund managers, as they saw a large portion of their shareholder value evaporate during the lock-up period.

In this context, it’s easy to understand why many saw Reddit’s listing as a return to pre-pandemic days when loss-making companies could go public by simply offering a compelling narrative or growth story.

With Reddit’s stock price continuing to perform well, it’s clear the initial bump was not a fluke. The stock has staying power and, more importantly, robust investor confidence.

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This makes sense, as the company reported its first profit (if you disregard one-off stock-based compensation) since going public, with a 48% year-on-year revenue increase. It also reported a 37% uptick in daily active users.

Perhaps one of the biggest contributors to its sustained share price growth, however, is the company’s moves to diversify from digital advertising. The social media firm has forged partnerships with Google and public relations company Cision, licensing out its rich repository of conversational data, which is a source of immense value for artificial intelligence development.

A tale of two IPOs

Spring on the way?