Reddit’s plans for its initial public offering (IPO) are becoming clearer after a new S-1 filing came out Monday morning. It sets the price range for its stock at $31 to $34 per share at the start.
Its value should reach about $5.4 billion if buyers agree to pay its high end range. If 158.98 million shares are issued, Reddit would be worth $4.93 billion, which is the low end of this range of $31 billion. Others have come up with a possible valuation that is closer to or higher than $6 billion by taking into account employee or other person choices.
In any case, everyone seems to think it will become a public company at or above $5 billion, which is kind of like the Mendoza Line for Reddit. This is because of the price signals it sent out on the secondary market before it filed for an IPO.
With $804.0 million in sales in 2023, Reddit is likely to trade for between 6.9x and 8x its sales, based on how you calculate its value. And this multiple could be even bigger if buyers agree to pay more than $34 a share after the company meets with them on the road.
Since Reddit is a social media site that has been around for a long time and relies on ads to make money, that seems a bit pricey. Yahoo Finance says that Snap, which isn’t making any money, is worth 4.34 times its annual income, while Meta, which is, according to its own trailing revenues, is worth 9.86 times that amount.
A good reason for Reddit’s share price being closer to Meta than Snap is its plan for AI.
Ahead of this year, Reddit gave AI companies $203 million in contracts to use its data. Based on the filing:
We are also just starting to make money from a new business possibility in data licensing, which lets other people access, search, and analyze data on our platform. We agreed to license some data in January 2024. The total value of the contracts was $203.0 million, and the terms were between two and three years. We think that at least $66.4 million in sales will be recorded in the year ending December 31, 2024, and the rest will be recorded after that. Reddit data is always being added to and changed by users who connect with their communities and with each other. We think that our growing platform data will be a key part of training the best large language models (LLMs) and will also give Reddit another way to make money.
Even though it didn’t say who bought the deal, OpenAI CEO Sam Altman owns 8.7% of Reddit, which makes him the third-largest shareholder. He was also on the board of directors for the company at one point.
Big language model AI companies are always looking for training data, and Reddit has a lot of it. Its history, huge user base, and busy, crowdsourced writing are all things that make it a treasure trove. And Reddit has already shown that it can steal money from AI companies in return for this treasure trove.
There are some Reddit users who are worried about AI and the company as a whole, but those worries might not be as important as the money Reddit could make from its data.
Also Read: People Are Using Tiktok Less and Less. Is Tiktok Shop to Blame?
Reddit could be seen by investors as a side bet on AI, even though the company doesn’t make AI models for a living. And Reddit is adding new information every hour. That will help Reddit grow in the future. People used to say that the best way to get rich during a gold rush was to sell picks and shovels.
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