Reddit’s popularity is at an all-time high. Is an IPO next?
To better understand Reddit’s future, it is essential to examine what a new valuation and Series E funding means for the company.
With Reddit’s valuation hitting an all-time high, the future of the company and the direction in which it is heading is questionable. To better understand Reddit’s future, it is essential to examine what a new valuation and Series E funding means for the company.
Reddit’s valuation and funding
Valuation is the analytical process by which a company’s worth, projected or current, is determined by examining various metrics, including business management, future earnings, market value of assets and much more. The new valuation was determined after Reddit raised US$250 million in Series E funding.
Privately-owned companies, such as Reddit, typically require funding from investors in order to maintain value before either staying private or eventually moving into its initial public offering (IPO).
Fundraising for a company has five stages: Series A, B, C, D and E. Most companies start at a Series A funding and end at a Series C funding without ever moving into D and E. The last two series are typically reserved for companies that either want to avoid going public or are looking for a final push before going public.
Series D funding is typically led by large investment firms that are looking to push the value of a company before it goes public. If the Series D push is not enough to get the company to its projected value, the company may eventually push for Series E funding.
In February of 2019, Reddit’s valuation of US$3 billion was determined after Series D funding led by Tencent resulted in US$300 million being raised.
Public, private and profit
Reddit has been a privately owned company since its inception in 2005. However, the company has stated that its goal is to eventually go public.
In a 2019 interview, chief executive officer and co-founder Steve Huffman stated that the company intended to go public by 2020. Huffman also noted that Reddit going public was an eventuality in order to reward employees and investors, calling it “the only responsible choice” for the company.
In this same interview, Huffman announced plans for company expansion, including hiring new staff and pushing for more ad revenue on the website. In 2019, Reddit’s ad revenue topped US$100 million and the company was expecting to grow that revenue by 70% in 2020.
In that same report, Reddit reported that they had 52 million daily active users in October of 2020.
GameStop stocks and Reddit’s new valuation
At the start of the year, the subreddit r/wallstreetbets began a campaign to revitalize GameStop ($GME) stocks believing the stock to be undervalued. This campaign led to a massive surge of retail investors pushing the value of the stock to historic highs along with an influx of visitors on Reddit’s website. Reddit primarily generates profit through ad revenue along with users signing up for Reddit premium.
The Series E funding that began earlier this year was a smart play after the influx of visitors. With Reddit spending their entire marketing revenue for a five second ad during the 2021 NFL Super Bowl, the company is pushing for a big move in the future that could lead to the company going public.
A private company rarely makes it to Series E funding. The valuation that comes with Series E funding is extensive and based entirely on analytical data points rather than “gut-feelings.” Reddit’s current valuation, recent funding campaign and marketing endeavors all point to its growth and expansion.
Huffman stated that the company would like to go public by 2020. With 2020 coming and going with Reddit still maintaining its status as a privately-owned company, the question of Reddit going public isn’t a matter of “if” but “when.”
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