By
Godfrey Benjamin
April 22nd, 2024
Reddit debuted on the New York Stock Exchange to eager traders as shares jumped significantly and closed close to 50%.
Reddit Inc (NYSE: RDDT) shares jumped an impressive 48% on Thursday at the social media giant’s market debut, signaling high anticipation from traders. According to data from MarketWatch, RDDT closed at $50.44, more than 48% higher than its $34 set price.
RDDT has pulled back slightly in premarket, falling 2.85% to $49.
Reddit Shares High Market Performance Despite Top-of-Rage Price
Reddit is the first major social media company to go public since Pinterest’s initial public offering (IPO) in 2019. On Wednesday, Reddit priced its shares at $34, the highest point of its initially announced $31 to $34 range. After opening at $47, Reddit shares jumped 70% to a $57.80 peak before closing at $50.44. The company now has a market cap of about $9.5 billion, according to a CNBC report.
Reddit’s $34 IPO share price put the company’s valuation at $6.5 billion, lower than the $10 billion valuation from 2021. Unfortunately, inflation dampened the market in 2022 and plunged several company valuations after interest rates rose and firms began to trim their staff strengths. In the tech sector, companies laid off more than 163,000 employees in 2022, with over 85,000 staff fired in the fourth quarter. In the first quarter of 2023 alone, tech layoffs hit 167,534.
Reddit’s price-to-sale (P/S) ratio of 8 may be poor, especially compared to other companies. While Alphabet is at 6.1, Pinterest is at 7.5. Meta’s figure is poorer than Reddit’s at 9.7, while Snap takes the crown among the lot, at 3.9.
The price-to-sales ratio is a financial metric used to measure or evaluate a company’s valuation by comparing its market cap to its total revenue. Generally, a lower P/S ratio is better because it means that investors pay less for each dollar the company generates. However, proper evaluation of a company’s P/S ratio requires comparison with the ratios of other companies in the same industry.
In general, the social media giant has not been very successful since inception. Reports state that in its 19-year history, Reddit has recorded a net loss every year. However, the company’s net loss improved to $90.8 million last year from $158.6 million in 2022. In addition, the company’s revenue climbed nearly 20% in 2023 to $804 million.
An S-1 filing noted that the site had an average of 73.1 million unique daily active users in the three months to December and about 500 million monthly visitors in December alone.
Reddit and Artificial Intelligence (AI)
According to co-founder and CEO Steve Huffman, Reddit is now looking into using data it has gathered, for artificial intelligence (AI) purposes. Huffman noted in the filing that Reddit already uses AI to recommend posts and communities using post topics, engagements with similar users, and search queries. He also added that this has improved the process of onboarding new users and driving engagement with existing users. However, he said that the company is considering business opportunities for licensing data.
“On the data side we’ve got almost two decades of human conversations about anything and everything. In an AI world, where everything is increasingly written by AI, the human-generated content actually becomes more valuable over time,” said Huffman.