Reddit’s Market Madness: Understand the IPO in 5 Minutes | EP 25
Description
In this episode of UNinvested, Sahil explores the highly anticipated IPO of Reddit, the platform at the heart of meme culture and online communities. Sahil dives into Reddit's history, the motivations behind its IPO, and the potential impact on the platform's integrity and user experience as it navigates the demands of public shareholders.
What we explore:
Overview of Reddit's IPO on March 20th, 2024, under the ticker symbol RDT
Founding and early history of Reddit by Steve Huffman and Alexis Ohanian
Reddit's transition from a startup to a major platform and the eventual return of its founders
The founders' dispute over content moderation and its impact on Reddit
Challenges Reddit faces as a public company, including shareholder pressures and potential changes to the platform
The timing of Reddit's IPO amidst economic uncertainty and its strategic bet on user engagement
Reddit's financial scrutiny, including CEO Steve Huffman's compensation and the company's profitability concerns
Broader implications of Reddit's IPO for tech companies and community-driven platforms
Where to find Uninvested:
Website: https://www.uninvested.org/
In this episode, we cover:
[00:00:00] Introduction and the significance of meme culture on the stock market
[00:00:04] Reddit's IPO and its potential impact on the company
[00:00:23] Overview of Reddit's IPO details and share price
[00:00:35] Reddit's founding and early success
[00:01:02] Sale to Conde Nast and the founders' departure
[00:01:48] Return of the founders and leadership changes
[00:02:01] Dispute over content moderation and its aftermath
[00:02:26] Challenges Reddit faces as a public company
[00:02:47] The importance of shareholder appeasement
[00:03:01] Timing of Reddit's IPO and economic conditions
[00:03:25] Reddit's unique position as a community-driven platform
[00:03:38] Impact of meme stocks and user influence on the market
[00:03:57] Financial scrutiny and CEO compensation
[00:04:19] Profitability concerns and long-term sustainability
[00:04:36] The broader implications of Reddit's IPO
[00:05:02] Conclusion and the ongoing battle between ideals and profits
In a world where meme culture drives the stock market and online communities make or break company reputations, Reddit – the company at the center of it all, entered the public eye with its IPO. Now, the company we all love, could change for the worse.
[Music]
Welcome to UNinvested, where today, we dive into the details behind one of the most anticipated public offerings in recent tech history, all in 5-minutes. I'm Sahil, and this is the story of Reddit's daring dive into the stock market.
First, let's set the stage with the facts: On March 20, 2024, Reddit made its debut on the stock market under the ticker symbol 'RDT.' Super unique right. The company set its initial share price at $34, aiming to capitalize on its massive user base and pivotal role in digital culture. But why now, and why at this price? Reddit has been around for 20 years after college best friends and roomates, Steve Huffman and Alexis Ohanian founded the company.
They dubbed the company, the “front page of the internet” in 2005 when they went through the famous accelerator Y Combinator. However, after quick success they sold the company the next year for $10 million to Conde Nast. To be fair, $10 million is a lot of money to turn down at 23. Not everyone can be like Mark Zuckerburg who holds onto equity for dear life, knowing they have a billion-dollar company on their hands. In fact, Steve Ballmer, an early founder at Mircosoft and owner of the LA Clippers offered Zuckerburg billions to buy it in the early days. Zuck didn’t blink when he said no.
But back to Reddit and the two founders - Steve and Alexis. They both stayed on to grow the company before leaving in 2009. Their exodus from the company didn’t last really long as Ohanian joined as chairman of the board in 2014 and Huffman as CEO in 2015.
But like many sad startup stories, the founders had issues. In 2020, Ohanian left the company when he and Huffman had a dispute over what content to keep on reddit. During the pandemic, problematic subreddits, communities on reddit, popped up all over. Ohanian wanted to remove the content, citing hateful content didn’t belong on Reddit. But Huffman wanted to keep the content. He didn’t believe it was Reddit’s place to determine what was or wasn’t allowed. However, the same content that the two best friends argued over was eventually removed.
The beef even continues today. During a few Reddit congratulatory posts, Ohanian seemed to be left off.
But why does all this matter for Reddit? Well now Reddit has to appease shareholders. Reddit can’t play by its own rules anymore, which could change the integrity of the platform as a whole. Imagine a world where a prominent shareholder can threaten to tank a stock if the company didn’t do what they said. Kinda like Elon threatening to sell off all his Twitter shares unless they sold to him. And guess what, they had to sell to him because a public company has to protect it’s share price above all else.
What makes this IPO even more intriguing is the timing. IPOs, especially tech IPOs, have been extremely uncommon and volatile given the current economic conditions. Other tech giants have faced scrutiny over valuations and market sustainability. Many companies have held off their IPOs until the overall economy is in a better place to avoid their value slipping.
So, what makes Reddit different? The company bets on its unique position as a community-driven platform. As the powerhouse of engagement and content, Reddit believes it can monetize its 430 million monthly active users.
It will be interesting to see how the company balances, making both its users and shareholders happy. If any of you followed Gamestop's rise as the king of meme stocks, you know that Reddit users can cripple a stock just as easily as any large hedgefund or billionaire investor.
Already, Reddits financials come under intense scrutiny. Notably, CEO Steve Huffman's compensation has sparked debate. In the lead-up to the IPO, Huffman defended a staggering $193 million package, primarily in stock options and bonuses.
Having a $200M salary as a CEO is already a hot topic, but it becomes even more questionable when the company only had revenue of $804 million last year. Even worse, Reddit is not even profitable. The platform has not yet reported a profitable year, which raises questions about its long-term financial sustainability, especially now that it must answer to public shareholders. Maybe cutting that salary would help.
As many tech companies struggle to balance growth and profits, Reddit’s challenge is no different. Now, the stakes are higher. The dynamics of control and influence shift dramatically. Shareholders, especially institutional ones, might push for changes that prioritize profitability, potentially at the expense of the free speech which has defined Reddit.
As we look ahead, the implications of this IPO extend far beyond Reddit. It sets a precedent for how tech companies rooted in open community platforms approach going public. It’s the perfect battleground of ideals versus profits.
Thank you for listening to UNinvested. If you enjoyed the episode, please like, subscribe and share! Stay tuned for our next episode on every Thursday for another deep dive.
