Tall Order: Bulls Hope Reddit’s Fledgling Stock Will Lift the IPO Curse

Social media site Reddit Inc. is poised to go public, raising a potential $750 million, the first tech company to do an initial public offering this year. Bullish dealmakers hope it is a harbinger of a turnaround in the IPO slump.

Reddit, a message board website with an ardent user base, may be the spark that Wall Street has been waiting for to cure the IPO malaise, wrote Brianne Lynch, head of market insight at EquityZen, a trading platform for privately held shares in firms usually eyeing a public listing. “A lot of companies are waiting for one company to go out and have this blockbuster IPO, and then that will encourage others to follow,” she commented.

In its filing Monday, Reddit set a share price range of $31 to $34, aiming to raise as much as $750 million. The IPO likely will take place before the end of March. Like many young tech outfits, Reddit—founded in 2005—is in the red, although in 2023, it halved losses from the year before, to $91 million.

Reddit does have some factors in its favor, as it was the go-to forum for young stock aficionados during the 2021 meme stocks craze. The hope is that these enthusiasts will fuel a strong showing for Reddit stock once it goes public.

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Loyal Redditors, as users are known, will be able to buy shares at the offering price right before the stock goes public, an advantage normally reserved for big backers. Among existing bigshot investors: artificial intelligence star and OpenAI CEO Sam Altman, who holds a private stake in the firm, which will be around 7% once the stock goes on sale.

In general, the public offering picture is not inspiring. Thus far in 2024, there have been only 33 IPOs. For the first three months of 2023, 44 companies had gone public. The IPO recovery has sputtered this decade. The record for the 21st century is 2021’s 1,035 offerings. That total dwindled to 181 in 2022, then to 154 in 2023.

But it remains to be seen whether Reddit will have the bang-up debut that will lift the IPO market’s curse. Lynch pinpointed three highly lauded 2023 IPOs that failed to light a broader fire: Instacart, Birkenstock and Arm .

Grocery delivery service Instacart (IPO funds raised: $660 million), formally known as Maplebear Inc., slumped to two-thirds of its September 2023 offering price before it rallied in just the last few weeks with the market’s overall surge. Instacart is currently up 15% from its October 2023 launch.

German shoemaker Birkenstock Holding ($1.5 billion) fell 13% in the first day of its October 2023 opening. Then it inched north and sits just $1 above its offering price. Shoe sales were helped by the blockbuster film “Barbie,” where Margot Robbie, in the title role, wore a pair of pink Birkenstocks. The product-placement movie scene had no detectable influence on the company’s stock situation, though.

British chip designer Arm Holdings ($5.2 billion) traded down for the first half of its six months in the public market before at long last taking wing a month ago on the artificial intelligence updraft. Since early February, it has soared to double its IPO price. It is 90% owned by parent SoftBank Group, the Japanese conglomerate.

“Reddit is a platform that really gave a big voice to the retail investor during the whole meme stock frenzy,” strategist Lynch wrote, adding that this group possibly could lift Reddit stock to solid gains. On the other hand, a lot of their pet meme stocks crashed and burned.