Reddit IPO pops on Wall Street: What happens next?

After plenty of buzz, Reddit’s now a publicly traded company with its shares listed on the New York Stock Exchange (NYSE). Here’s what investors need to know.

Reddit went public under the ticker symbol “RDDT” in what was one of the most talked about initial public offerings (IPOs) in the last few years.

After an initial share price of $34 (just over £27), Reddit managed to close on its first day of trading at $50. But we’re expecting to see a bumpy ride – and plenty of people watching it. Some companies will use the success or failure of this IPO as a gauge of the market’s appetite for future IPOs.

What is Reddit?

Reddit is a social media network that operates in a different style to most other forms of social media.

Essentially, Reddit is made of communities and message boards (known as subreddits), allowing people from across the world with shared interests to meet (online) and discuss everything from the mundane to the weird and wonderful.

This could involve sharing the latest stock tips on r/WallStreetBets or share photos of bread stapled to trees on r/BreadStapledToTrees (over 300,000 “Redditors” have that particular hobby).

If there’s something you’re interested in, chances are there’s a Reddit community for it.

What happened with the Reddit IPO?

For the IPO, Reddit shares were priced at $34 (the upper end of the range, pencilled in at $31 to $34).

As expected, initial share price movement for Reddit stock was quite volatile as the market attempted to agree on a fair price, finding an equilibrium between sellers and buyers.

Yet there was a significant initial pop sending Reddit stock up past the IPO price and bouncing around between $45 and $55.

Reddit (RDDT) will also be pleased that it managed to raise over $700 million, giving it a valuation of around $6.4 billion, enough to put a smile on the most conservative Reddit “mods” (the people who volunteer to moderate the subreddits and communities).

How does Reddit make money?

Like most social media networks, Reddit currently generates revenue through advertising.

The more time people spend on the platform, engaged and providing their precious attention, advertisers will pay for a portion of real estate to capitalise on those eyeballs.

However, Reddit has faced some backlash around the monetisation of the business. And the new strategy it’s exploring is through an artificial intelligence (AI) content licensing deal with Google.

In this deal, Reddit will get around $60 million a year in return for data that can be used to help train and advance AI models.

Where do Reddit shares go next?

It’s impossible to predict what will happen with any certainty.

In many cases, IPOs tend to fly high initially and then quickly deflate, as shown in our Finder IPO research which reveals how plenty of IPOs with lots of hype in the last 5 years have fallen flat shortly afterwards.

The good news about Reddit share price volatility is that there may be some good opportunities to buy the stock for those who believe in the company’s long-term prospects.

However, it’s likely to be a wild atmosphere for the foreseeable future as buyers and sellers move back and forth, arguing the positives and negatives of Reddit – and trading accordingly.