The 'American Retail Investors Headquarters' is about to IPO, raising $800 million from forum users, with Ultraman holding a 5% stake.

Reddit, known as the 'American Baidu,' is set to lead the technology industry's IPOs this quarter.

On February 22nd, Reddit released its prospectus. The report revealed that in 2023, the company's revenue reached $804 million, a 21% year-on-year increase, with a gross profit margin of 86%. The net loss in 2023 decreased from $159 million to $91 million, showing a narrowing loss. Reducing losses is a crucial step towards profitability, although Reddit has not yet reported a profit.

Moreover, Reddit has decided to sell a 'significant' number of shares to retail investors and platform users. Reddit views its users not only as platform users but also as a core part of the company's value. By allowing users to participate in the company's equity, it strengthens their sense of ownership of the platform. The company is set to go public on the New York Stock Exchange early next month, with the stock code RDDT.

The Reddit prospectus highlights the importance of Reddit's vast conversation data and knowledge base for AI, serving as foundational material for many leading large-scale language models. Reddit has collaborations and cross-investments with tech giants, such as Altman holding a 5% stake in Reddit, and Alphabet-C using Reddit posts to train its AI models.

Collaboration between Reddit and Tech Giants

Reddit stated that OpenAI CEO Sam Altman holds over 5% of the shares in Reddit through entities related to him. Altman was a member of Reddit's board during the 2021 financing round.

In the last private financing round in 2021, Reddit was valued at $10 billion, but since then, some investors have lowered its valuation by about 50%. However, Reddit's operating revenue continues to grow steadily. According to the prospectus, Reddit's sales revenue reached $804 million in 2023, a 21% year-on-year increase.

The growth in Reddit's sales revenue mainly comes from advertising. As a platform once considered a fortress of free speech, Reddit has had to tighten its content moderation in recent years to create a safer and more attractive environment for advertisers.

In addition to advertising, Reddit is also seeking revenue diversification, such as charging third parties for data access, collaborating with tech giants like Alphabet-C, and formalizing market transactions between users.

On Thursday, Reddit announced an agreement with Alphabet-C, which will 'pioneer new ways to showcase Reddit content in Alphabet-C products' and allow Alphabet-C to use Reddit posts to train its AI models. According to reports, this deal is worth about $60 million annually.Reddit's recent partnership with Alphabet-C not only brings significant revenue to Reddit but also enhances the visibility and influence of its content, while supporting Alphabet-C's development in the field of artificial intelligence.

Furthermore, Reddit is exploring ways to generate revenue from transaction activities on its platform, such as users buying and selling sneakers in specific communities or editing and transforming photos. After the service is completed, users who requested the service will pay a certain fee to the service provider.

According to the prospectus, as of December 31, 2023, Reddit has over 1 billion posts and more than 16 billion comments, ranking among the top ten most visited websites in the United States in December 2023. Reddit's content is particularly crucial for AI, as it serves as a fundamental part of the training for many leading large-scale language models.

In addition, Reddit uses internally built and trained models to enhance various aspects of Reddit, including user onboarding, content translation, moderation, and security. Reddit's vast conversational data and knowledge base make the company unique, and Reddit believes that as user-generated data continues to grow, its value will increase over time.

Reddit Crowdfunding from Forum Users

Reddit mentioned in its prospectus that the platform has 267.5 million weekly active users spread across over 100,000 subreddits covering discussions from entertainment and technology to personal finance.

The most famous subreddit is the WallStreetBets trading forum, known for causing market turbulence by encouraging retail investors to collectively buy meme stocks like GME, highlighting the influence of social media in financial markets.

Reddit's co-founder and CEO, Steve Huffman, expressed his appreciation for the community in the prospectus:

"We hope that the company's public listing will bring meaningful benefits to its community."

Reddit stated that it will allocate stocks to Reddit users through a "directed share program" and plans to sell stocks through popular personal investment management apps like Robinhood and SoFi to attract a broader range of retail investors to participate in its IPO. Reddit recognizes that its users are not just platform users but a core part of the company's value. By allowing users to participate in the company's equity, it strengthens the sense of ownership users have towards the platform.

Huffman also emphasized the deep sense of ownership Reddit users have over the communities they create, with this sense of ownership often extending to the entire Reddit platform. On Reddit, users not only consume content but also create and maintain communities. This sense of ownership is a key aspect of Reddit's culture, making users feel they have a direct stake and impact on the platform.Analysts believe that Reddit's decision to go public is not only to raise funds and expand its business, but also to deepen its connection with the user community, acknowledge the users' contributions to the platform, and give them ownership in the form of actual equity. This approach may further motivate user participation and engagement, enhancing the community's vitality and involvement.

However, Reddit also warned in its prospectus that involving an unusually large number of retail investors in the IPO could exacerbate stock price volatility, potentially replicating the "retail concept stock" price behavior seen shortly after Robinhood's IPO in 2021. If the price surge is mainly driven by short-term trading frenzy rather than fundamental company support, such high prices may not be sustainable, and over time, the stock price may decline.

Over two years ago, Reddit initially submitted a confidential version of its prospectus, but its IPO plans were thwarted due to rising interest rates and declining tech stock valuations. However, in recent months, with market expectations of the peak of the interest rate cycle and U.S. stock indices hitting historic highs, market activity has been picking up. Companies like Reddit are seizing this opportunity to achieve their listing goals.