Reddit could finally go public this year.
On the heels of Circle’s IPO filing and news from a major exchange that a host of companies are preparing to go public this year, Reuters reports that Reddit has “detailed plans” to go public in March.
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Now, before the rumor mill gets going, let’s make one thing clear: Reddit going public in the first quarter is not going to throw the IPO window wide open for other tech companies waiting to exit. Most unicorns in the market today build products for other businesses, while Reddit is a more consumer-focused business that makes money from advertising and subscriptions. Still, if Reddit manages to pull off a strong IPO, it would help make going public palatable for companies of all sorts. An IPO at this time could stand to have a bigger impact if this were a B2B-focused company, but you can’t always get what you want.
We may have a number of potentially big IPOs in the queue today. Besides Reddit and Circle, huge companies like Shein are also reportedly busy getting their S-1 and F-1 ducks in a row. They represent a possible vanguard, but in reality, they don’t make up even a fraction of the number of companies that need to go public.
Cowboy Ventures’ founder Aileen Lee wrote a long-awaited follow-up to her original 2013 article in which she coined the term “unicorn.” The new article is illuminating on many fronts, but one line stuck with me: Of the 532 unicorns that Lee and Cowboy Ventures count in the U.S. today, there have been very few exits, with only 7% (35 companies) going public compared to 66% a decade ago.
That means we have hundreds of unicorns in the U.S. that need to go public. The backlog is so long it would take years to clear (and we’re not even counting the hundreds of unicorns across the world). The sooner the IPO window can open, the better.
Unicorns that cannot support their previous private-market valuations can most likely no longer wait for valuations to recover from their present levels. That optimism burned off over the past couple of years, and only some progress on the revenue-multiples front has been earned.
No, unicorns will have to go out and potentially lose their horn in the process. That means Reddit doesn’t have to best its private-market price tag of $10 billion — set in, you guessed it, 2021 — to notch a win. It only has to beat whatever expectations its IPO filing engenders in the market.
The Information reported that Reddit wrapped 2023 with around $800 million in advertising revenue, up about 20% from a year ago. I doubt that a 20% spike in revenue will help the company defend a greater than 10x trailing revenue multiple, but there is some hope if growth accelerated near the end of the year.
Who is the chosen one?
Last year, we saw a trio of IPOs that failed to catalyze the market. Instacart, Klaviyo and Arm did fine in their debuts, but not well enough to prove that the public markets were stoked about new public listings of tech shares.
If Reddit isn’t destined to be the IPO that manages to shake loose trillions of dollars of startup worth, who could be that champion? Databricks is the clear answer, because it doesn’t seem likely that OpenAI will try to go public in the near future, if ever. Databricks is huge, it’s growing quickly, and it has an AI story to tell, too. Its open source software business checks a lot of enterprise SaaS boxes, so if it goes out to a strong reception, it could clear a wide path behind it.
Reddit’s debut will be fun. Shein’s will be a wild ride if it does file to list in the United States. Circle will be an intellectual curiosity, thanks to its crypto-native posture and net-interest margin business. But just like last year, the three IPOs we expect to see are not the tonic other startups are waiting for the market to down.