Reddit: Shares of social media companies jump in their debut on the stock market

Shares of social media site Reddit closed up 48% on the company's first day of trading on the New York Stock Exchange.

Reddit revealed on Wednesday that it had priced its shares at $34 per share, near the top of the marketed range.

By the end of trading on Thursday, its shares were at $50.44, valuing the company at more than $9bn (£7.1bn).

It was one of the largest initial public offerings (IPO) ever through the social media platform.

It offered 22 million of its shares for sale, and in an unusual move, it offered some shares to platform users, although the number of people who accepted the offer was not revealed.

Reddit was founded nearly 20 years ago and has become one of the most popular websites in the world.

It is an online forum where users can discuss topics of interest to them. As of the end of December 2023, it had over 73 million users, According to the company.

But the recording highlights a question that has been bubbling behind the scenes for years — how a company can make money from what are essentially random conversations.

People don't pay to use Reddit — the site is completely free for people to browse, post, and comment on.

For 20 years it has been unable to turn a profit, and some may wonder why Reddit is worth billions if it has never made a profit at all.

He tried a few things, and a big visual change in 2017 made the site more advertiser-friendly.

But Reddit's path to profitability appears to have an end in sight, and it's built on AI models.

This is because companies like OpenAI, the developer of ChatGPT, will pay for the data of those random conversations.

Google is believed to have paid Reddit $60 million for the right to scan nearly two decades of discussions to make its AI more human-like — and Reddit said it has agreed to licensing deals worth more than $200 million over the next two or three years.

In February, Reddit said it lost $90.8 million in 2023, so money from artificial intelligence (AI) companies could make the platform profitable.

But there are also a lot of concerns on Reddit's horizon as well.

For one thing, the social media platform is facing increasing scrutiny from regulators.

The US Federal Trade Commission (FTC) is already looking into how Reddit licenses its data to AI models – in general, regulators don't like it when big tech companies sell user-generated data.

While the platform may have expected this to happen, it may have been surprised by the challenge posed by mobile phone company Nokia, which it accuses of violating its patents.

“We will evaluate their claims,” Reddit said, adding that she has faced similar accusations in the past.

Perhaps most important of all, Reddit's filing with the US Securities and Exchange Commission (SEC), the US financial markets regulator, flags its users as a potential risk that comes with owning shares in a company.

“If we fail to grow or retain our user base or if user engagement declines, our business and prospects will be harmed,” it said in the filing.

“If Redditors do not continue to contribute content or their contributions are not valuable or attractive to other Redditors, we may experience a decrease in the number of Redditors accessing our products and services… which could result in a loss of advertisers.”

Reddit's user base has been known to react with frustration to changes made to the platform.

Such is their distaste for the changes made in recent years, that a search on the platform for CEO Steve Huffman — username u/spez — shows that when Redditors mention him the comments are usually preceded by foul language.

Despite efforts to create an alternative platform, one of Reddit's biggest positives is something it doesn't have — a major competitor.

While there may be concerns on the part of Redditors, the social media platform appears to be on relatively safe ground when it attaches its stock market value to its users, as long as they have nowhere else to go.