Reddit's shares opened 38% above the initial public offering price in their debut on the New York Stock Exchange today, valuing the social media platform at $8.87 billion.
The San Francisco, California-based company priced its IPO at the top end of the $31 to $34 range. The IPO valued Reddit at $6.4 billion, while the company and its selling shareholders raised $748 million.
Reddit's long-awaited entry as a publicly traded company has been in the works for more than two years. It confidentially filed for an IPO in Dec. 2021, but the stock rout due to the Federal Reserve's quantitative tightening led toa delay.
The eyeball-grabbing debut will be a major test of the IPO market, where investors are seeing some green shoots, thanks to increasing bets of a soft landing.
"If Reddit trades poorly, it will cast a shadow over the IPO market. Many companies will hit pause on their IPO initiatives," said Julian Klymochko, CEO of alternative investment solutions firm Accelerate Financial Technologies.
Shares opened at $47 each versus the IPO price of $34 each.
Reddit's popularity rose to new heights during the "meme-stock" saga of 2021 in which a group of retail investors collaborated on its forum "wallstreetbets" to buy shares of highly shorted companies like GameStop.
As part of its plan to reward its user base, Reddit has reserved 8% of the shares on offer for eligible users and moderators, certain board members, as well as friends and family members of its employees and directors.
It has also offered some shares to retail investors through online brokerage platforms Robinhood, SoFi, Morgan Stanley Wealth Management and Fidelity Brokerage Services.
But the move is fraught with risks, analysts have said. Typically shut out of bidding in an IPO, retail traders eager to gain exposure to a newly listed company buy shares only when they start trading, which could lead to a first-day pop.
Allowing early access to the IPO could dampen some demand. Such buyers are also not under a lock-up period and could choose to sell when the stock starts trading, potentially increasing the price volatility.
"I don't know one company which really benefits from allocating shares to their users," said Alan Vaksman, founding partner at investment firm Launchbay Capital.
Stocktwits.com, the social media firm that analyses posts and message volumes on its platform related to a company's ticker symbol, showed retail sentiment for Reddit was "extremely bullish".
But the discussion on Reddit's "wallstreetbets" forum was more mixed, with some users saying they would short the stock after it starts trading.
