Reddit tests the IPO market during a treacherous time for unprofitable startups: ‘Sophisticated investors won’t be excited about buying’

Social media company Reddit has been toying with the idea of going public for half a decade. Now it’s finally going through with those plans—and the timing is risky.

The IPO market has effectively been at a standstill for the last two years, after public investors began to shy away from unprofitable businesses, and shares of public companies fell to earth after the pandemic-induced tech boom in 2020 and 2021.
 
Some companies that have tested the waters in the last few months have struggled to maintain traction. Instacart, for example, closed at less than $30 per share on Thursday, down 11% from its public debut in September.
 
Now Reddit is delving into the noise—and it could face even more trouble than some of its peers before it because of one key line item in its financials: It’s not profitable. Reddit, which revealed a net loss of $90.8 million in its IPO filing on Thursday, is more akin to the swaths of high-growth, money-losing companies that went public two years ago. It has cumulatively lost more than $716 million since 2014, and has yet to post a net profit, filings show. Revenue at Reddit is climbing—up to $804 million in 2023 from $666.7 million the year prior. But losses are a tough sell for public investors these days.
 
“They’re losing a good amount of money,” says Greg Martin, managing director of Rainmaker Securities, a secondaries brokerage where investors can buy shares of private companies before they go public. “Sophisticated investors won’t be excited about buying,” he wrote in an email…Read Full Article