Reddit: Shares of the social media giant make their stock market debut

Shares of social media platform Reddit jumped 48% on the company's first day of trading on the New York Stock Exchange.

On Wednesday, Reddit revealed that it valued the business at $6.4bn (£5bn) by selling its shares at $34 each, close to the market's range.

Shares were trading at $50.44 by the end of trading on Thursday.

It is one of the largest initial public offerings (IPOs) ever by a social media company.

It put 22 million of its shares up for sale and, in an unusual move, offered some shares to users of the platform, although it was not disclosed how many people took up the offer.

Reddit was founded almost 20 years ago and has become one of the most popular websites in the world.

It is an online forum where users can discuss topics of their interest. At the end of December 2023, it has more than 73 million users, According to the company.

But the filing brings to the fore a question that's been bubbling behind the scenes for years — how a business can make money from, essentially, random conversations.

People don't pay to use Reddit – the website is completely free for people to browse, post and comment.

It hasn't turned a profit in 20 years, and if Reddit hasn't made any money yet, some may ask why it has billions.

It has tried a few things, and a significant visual change in 2017 made the website more advertiser-friendly.

But Reddit's path to profitability appears to have an end in sight built around AI models.

That's because companies like OpenAI, the developer of ChatGPT, will pay for data from those random conversations.

Google is believed to have paid Reddit $60m for the right to scan nearly two decades of discussions to make its AI more human – and Reddit has said it has agreed licensing deals worth more than $200m over the next two to three years.

In February, Reddit said it lost $90.8m by 2023, so money from artificial intelligence (AI) companies could make the site profitable.

But there are plenty of concerns on Reddit's horizon as well.

For one, the social media platform faces increased scrutiny from regulators.

The US Federal Trade Commission (FTC) is already investigating how Reddit licenses its data for AI models — regulators don't usually like it when big tech companies sell user-generated data.

While the platform may have been seen coming, it may have been blindsided by a challenge from mobile phone giant Nokia, which it accuses of infringing on its patents.

“We will evaluate their claims,” ​​said Reddit, which has faced similar allegations in the past.

Reddit's filing with the Securities and Exchange Commission (SEC), the U.S. financial market regulator, notes that its users are at risk of owning shares in the company.

“If we fail to grow or retain our user base, or if user engagement declines, our business… and prospects will be harmed,” it filed.

“If Redditors do not continue to contribute content, or if their contributions are not valuable or engaging to other Redditors, we may experience a decline in the number of Redditors accessing our products and services…which could result in lost advertisers.”

Reddit's user base has been known to react in frustration to changes made to the platform.

A search of the site for chief executive Steve Huffman — username u/spez — shows that when redditors mention him, comments are usually prefaced with the wrong word.

Despite efforts to create an alternative platform, one of Reddit's biggest advantages is something it lacks – a significant competitor.

While there may be concerns from Redditors, the social media platform seems to be on relatively safe ground when it comes to tying its stock market value to its users, so they have nowhere else to go.