Reddit Signals Turnaround in IPO Activity

Just days after Reddit publicly launched its shares, analysts are calling the offering a success. The stock price nearly doubled, indicating that the recent lull in IPO activity may end.

A Bit of A Gamble at High Rates

Investors' appetite for IPOs, particularly in the technology sector, had waned recently as rising interest rates weighed on capital costs. However, with the Fed expected to begin easing monetary policy in the coming quarters, market participants closely watched Reddit's public debut to gauge sentiment. Given the environment, there was concern heading into the launch around whether Reddit's shares would follow the pattern seen in many other recent IPOs that experienced steep price declines shortly after going public.

However, the stock price continued climbing over subsequent sessions after the first trading day. The market valuation was on pace to increase over $1 billion in less than a week as option trading commenced, with the share price approaching a doubling of the IPO price. Astera Labs also launched its IPO last week and saw its stock jump 72%. Reddit was initially valued at $6.5 billion in its public launch but has since surpassed $10 billion in market capitalisation, matching the private valuation from its last funding round in 2021.​

Where to Next for Reddit Stock

Analysts point to higher-than-expected activity from bullish retail investors on Reddit's stock listing. The social media company's platform hosts the prominent WallStreetBets meme-stock trading community. While Reddit appears exciting to individuals and some institutional investors, analysts remain cautiously optimistic. New Street Research, the first rating agency to address Reddit's outlook, maintained its $54 price target and forecasted volatility following the initial earnings report. That price target currently sits below Reddit's trading price.

The market ignored New Street's review and pushed the stock higher, albeit moderately. Analysts suggest investors may be betting on a potential data licensing deal with OpenAI, a scenario already priced into the current valuation. OpenAI CEO Sam Altman owns a substantial stake in Reddit and saw his portfolio increase by over $300 million after the IPO. If an agreement is announced, it may provide a limited additional upside for Reddit's share price. Furthermore, the FTC examines Reddit's move into data licensing, which could pose a challenge. As a result, Reddit's near-term growth potential may hinge on its first public financials due in May.​

Reddit Stock in Flag Pattern?

Reddit's stock price appears vulnerable to further declines unless the recent downward movement reverses course. Prices could fall to as low as $45 per share if downside momentum continues unchecked. However, if the stock finds support around $55 per share and that level holds firm, prices could reverse upwards and potentially rise to between $63-$75 per share again by retracing recent swings.

Source: SpreadEx / REDDIT

Key Takeaways

Analysts saw Reddit's IPO last week as a success, with the stock price nearly doubling on the first day of trading and continuing to climb in subsequent sessions. The strong performance indicates that IPO appetite may improve as the Fed is expected to begin easing. Some analysts remain cautiously optimistic due to uncertainties surrounding data licensing deals and regulatory challenges. Reddit's performance over the next quarter after it releases its first financial report in May will provide more clarity on the company's growth trajectory.