Reddit (NYSE:RDDT) stock closed its first day of trade well in the green, soaring 48% on Thursday as investors eagerly jumped onto one of the most anticipated initial public offerings (IPO) of the year.
Reddit raised $748 million in its Wall Street debut, earning a valuation of $6.4 billion. This is actually less than the $10 billion valuation the company earned in a round of private fundraising back in 2021. However, it still suggests Reddit need not have lowered its valuation estimates so drastically to gain traction for its IPO.
While Reddit has only turned a profit once in its history, dating back to 2005, the company has won the hearts of investors with a promise of artificial intelligence (AI)-fueled optimization.
Just last week, the company inked a data licensing agreement with Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) worth roughly $60 million per year, a deal that inspired ire in Reddit users and hopefulness in investors.
“At the core we are a growth company. Achieving our mission means that we want to grow users and community,” said Jen Wong, Chief Operations Officer at Reddit.
RDDT Stock Soars In Impressive Reddit IPO
It’s been a relatively quiet year in the IPO world this year. This likely proved a benefit to the Reddit IPO, as many hungry investors eagerly swarmed one of the few recent big tech launches.
Reddit opened trade for $47 per share, the top of its expected range. Currently, RDDT stock is up to $50 a share, having lost some of its hard-earned value early Friday.
Interestingly, Reddit reserves 8% of its shares for sale to eligible users and moderators of the user-run website, in addition to some board members and close friends and family of Reddit employees.
However, not everyone feels warmly about the internal share allocation.
“I don’t know one company which really benefits from allocating shares to their users,” said Alan Vaksman, founding partner at Launchbay Capital.
Investors remain suspect of Reddit’s IPO surge, fearing it will decline like so many other recent high-brow public launches.
“The real news is going to be after the first earnings call – where are they headed, what are the results looking like, what changes are they going to make,” said Reena Aggarwal, director of the Georgetown University Psaros Center for Financial Markets and Policy.
Reddit remains an infamous name on Wall Street, largely as a result of the famous 2021 “meme stock” craze on its r/WallStreetBets forum.
Users on the page orchestrated massive short squeezes on a number of “meme stocks,” including GameStop (NYSE:GME) and Bed Bath and Beyond. As the stocks rose, institutional investors lost billions as they were forced to offload their short positions, while retail investors profited big.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
