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Shares in social media company Reddit leapt more than 38 per cent on its market debut, in a vote of confidence for initial public offerings after two years of subdued activity.
The stock opened at $47 as trading began on Thursday at the New York Stock Exchange under the ticker RDDT, far above its IPO price of $34 a share.
The debut is viewed as a test of investor interest in IPOs following a tough two years for companies trying to go public.
On Wednesday shares of Astera Labs, an artificial intelligence infrastructure-related group, surged 72 per cent in a Nasdaq debut that raised $713mn, raising hopes that similar success for Reddit would pave the way for more companies to launch IPOs.
Hopes for capital raising have been bolstered by a stock market rally that has lifted the S&P 500 index to a series of record highs this year, gaining 27 per cent since a late October low.
So far this year companies have sold shares worth $7.1bn, according to Dealogic, more than three times the amount sold at the same point in either of the past two years.
The initial price of $34 a share that Reddit had set late on Wednesday was at the top end of its range, as the company received orders worth more than 10 times the amount on offer.
Early trading on Thursday gave Reddit a market capitalisation of almost $9bn, above the $6.4bn implied by its IPO price. Reddit had previously received a $10bn valuation in its last private fundraising in 2021.
In total, Reddit’s share sale raised $748mn, of which the company will receive $519mn with the rest going to existing shareholders.
About 2mn of its shares were allocated to the site’s loyal users and moderators, but without a “lock-up”, giving them the option to sell immediately. How Reddit users respond will be watched closely, as some in the social media platform’s trading forums have called for peers to short the stock as a protest over the community-based platform going public.
While Reddit is viewed as a sign of appetite for other potential IPOs, it also has unique challenges, including the risk of activity from meme stock traders seeking to short the stock.
Steve Huffman, Reddit’s chief executive, told CNBC before the company’s debut that “the best investors of Reddit are people who use Reddit”.
In the lead-up to its float, San Francisco-based Reddit has tightened its once-lax moderation policies in order to build up its advertising business, which accounted for most of its $804mn in sales last year. The 19-year-old company has never made an annual profit. It posted a $91mn loss in 2023, according to regulatory filings.
During its roadshow, Reddit said it planned to diversify its revenues, for example adding ecommerce features and selling its data to AI groups.
Huffman sold 500,000 of his shares in the IPO, indicating he will make $17mn. He is also set to receive additional equity awards as a result of the listing valuing the company above $5bn. The restricted stock units could be worth about $21mn.