What will come first: the heat death of the universe or Reddit’s IPO?
It appears the self-professed “front page of the internet” is once again gearing up for a public offering, Bloomberg reports. Back in 2017, the company aimed to go public by 2020, then wound up filing privately to do that in late 2021, and then just decided to wait 2022 out. Then it set its sights on the latter half of 2023, and now we’re looking at 2024.
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Granted, going public is no easy task, especially if you have raised a mountain of capital at a valuation of $10 billion. But just in case Reddit fails to do an IPO yet again, we have other names on hand.
Shein is also considering a public offering in the United States next year, the Wall Street Journal reported. The fast-fashion company best known for its low-priced apparel was profitable in 2022, but it’s also laboring under a massive valuation.
Many other unicorns are likely going to be watching how these IPOs perform, since they’ll pretty much prove how high private-market valuations translate to the public markets.
Earlier this year, Arm, Klaviyo, and Instacart went public in quick succession, sparking some hope that each IPO would price and trade well and consequently build investor confidence in tech IPOs. Sadly, the companies’ subsequent performance on the markets have failed to engender other IPOs.
If Shein and Reddit can do better than our minuscule tech IPO class of 2023, they could leave the sort of accelerative impact that tech startups so desperately need right now.
There’s some positive vibes to consider, if you’ll allow me a Zoomer cap for a moment. Tata Technologies’ $366 million IPO in India saw $18.74 billion worth of demand. Now, we both know not to put too much stock in IPO oversubscription, but that ratio did cause me to sit up and sputter. That’s a lot of demand.
You can read the Tata Technologies filing here if you’d like, but here’s the bit you were looking for:
This is a growing, profitable company, which explains a good bit of the demand. Still, seeing such subscription for the company’s shares implies that at least some investors are still willing to take a flier on new offerings of material size that have at least one foot in tech circles — Tata Technologies sells “engineering services to clients primarily in the automotive vertical, as well as aerospace, TCHM and our other adjacent verticals,” for reference.
But will a mild tailwind help Reddit and Shein defend their private valuations? What we really want to know is if their final valuations are even remotely attainable, and at which point vibes might have an impact. No amount of positivity, however, can fully obviate lackluster results.
Here’s what we know.
The company reported revenue of around $670 million in 2022, up 38% from a year earlier, per The Information. Against a $10 billion valuation, Reddit is worth about 15x its 2022 top line. If Reddit grows 25% in 2023, it would close the year with a trailing revenue multiple of about 12x.
If the company is not profitable, that’s going to be a very tough sale. Other sites that depend on user-generated content and interactions to generate advertising inventory are generally not valued that high. Snap is worth about 4.5x its trailing revenue, for example, and Meta trades at about 7x.
Shein
The WSJ reports that Shein’s revenue came to $23 billion in 2022, and net profit landed at $800 million. The company also apparently “told investors it delivered record revenue and income for the first three quarters of 2023,” per the report.
Shein was last valued at $66 billion, which means that it is worth just under 3x its 2022 revenue. Surely that $66 billion number is defensible? Maybe. Fast-fashion chain Zara is owned by Inditex, which trades at 3.3x its trailing revenues, and Hennes & Mauritz AB, which runs the H&M brand, trades at 1.2x its trailing top line. Shein is growing faster, I bet, but in the apparel realm, you trade more like an airline than a tech stock — a fact that is going to make the Chinese fast-fashion company’s IPO incredibly interesting to watch.
Honestly, I wonder if these are the two IPOs that the tech market needs to get back on its feet. Reddit is not a SaaS company, and thus won’t provide huge context for founders sitting on enterprise software companies, and Shein is not the usual sort of company that TechCrunch adds to spreadsheets of possible startup debuts.
Perhaps that’s for the best. If Reddit and Shein do well when they list, it’ll be good news because good news is good news is good news. But if they struggle, at least venture investors will be able to wave their hands and say that these are not good indicators of how real tech companies will trade.
At a minimum, the fact that we are getting IPO chatter now at all is welcome. I, for one, will order a Reddit shirt on Shein if both companies debut in Q1 2024.
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