Reddit has revealed that it is aiming for a $6.5B valuation when it floats on the New York Stock Exchange toward the end of this month. This seems a lot for a company which is still posting significant losses.
The company made a corporate filing with the U.S. Securities and Exchange Commission yesterday, which indicated that it planned to raise up to $748M by selling 22 million shares valued at between $31 and $34 each.
Reddit also said that it had set aside 1.76 million shares for certain Reddit users, employees and families of employees and directors.
The flotation will be the largest of a social media company since the IPO of Pinterest in 2019 which hit a value of $16B on its stock market debut.
Reddit first filed for an IPO in 2021 at a much higher value of $10B but chose to put this on ice due to economic uncertainty and the fact that technology stocks and valuations were returning to earth after pandemic hypergrowth.
At its heart, Reddit has a simple (and familiar sounding) model. Users post content without charge and companies pay to advertise to users. It's not complicated, but Reddit, despite being almost two decades old, remains a loss-making venture, to the tune of nearly $91M last year. In the previous year Reddit lost $159M.
When viewed through this lens, a valuation north of $6B seems optimistic. But like so many others, Reddit is betting the farm on AI. More specifically, it's betting the farm in data licensing agreements with companies who want all that lovely data to train their LLMs.
In its IPO prospectus Reddit made the following comment:
"In January 2024, we entered into certain data licensing arrangements with an aggregate contract value of $203.0 million and terms ranging from two to three years," Reddit says.
"We expect a minimum of $66.4 million of revenue to be recognized during the year ending December 31, 2024 and the remaining thereafter."
It was confirmed in February that Google has entered into a licensing agreement with Reddit worth approximately $60M per annum. It's also worth noting OpenAI's Sam Altman's 8.7% stake in Reddit, although no deal with OpenAI has been confirmed.
AI vendors have been effectively forced into data licensing agreements to swerve a torrent of lawsuits coming toward them over copyright violation, the most well-known of which is The New York Times' action against Microsoft/OpenAI which was filed at the end of last year.
This article originally appeared on our sister site Computing.
