Reddit power users balk at chance to participate in IPO as Wall Street debut nears
Jonathan Raa | Nurphoto | Getty Images
Sarah Gilbert spends a lot of time on Reddit. For the past three years, she’s helped moderate the r/AskHistorians subreddit, which has 2 million members and was the subject of her Ph.D. dissertation. She’s been a lurker on the forum since 2012.
But when the subject turns to Reddit’s upcoming IPO, Gilbert’s excitement wanes. The 19-year-old social media company set aside 8% of the shares in its offering for certain users and moderators, along with some company insiders and their friends and family members. Airbnb, Rivian and Doximity employed a similar model when they went public, as a way to reward power users or early customers.
Reddit’s initial public offering is different. While its predecessors hit the market during a record IPO stretch in 2020 and 2021, Reddit’s planned New York Stock Exchange debut this week will be the first major tech offering of the year, and lands after a major reckoning in the industry that was highlighted by tumbling valuations, reduced investment and an emphasis on profit over growth. The two venture-backed tech debuts of 2023 — Instacart and Klaviyo — failed to pop, a sign that getting in at the IPO price no longer equals free money.
It’s not just market conditions that have Reddit moderators like Gilbert forgoing the investment opportunity. Reddit has long had a rocky relationship with moderators and the site’s most dedicated users, or Redditors. Following a user protest last year stemming from a policy change that forced some third-party developers to pay more for use of the company’s application programming interface (API), Reddit CEO Steve Huffman compared site moderators to “landed gentry.”
Gilbert, who works as a research manager at Cornell University’s Citizens and Technology Lab, said the bad blood from the conflict has “really sort of knocked a lot of the goodwill and the energy” from those who had been spending the most time and effort on trying to build up communities on the site. It’s hard for her to now see the appeal in paying money to own a piece of the company and betting on its future.
“It’s like, OK, you’ve invested your time, you’ve invested your emotional well-being and put yourself at risk, now invest your money into this platform too,” Gilbert said. “It doesn’t really feel like Reddit is necessarily giving back, so much as it feels like maybe it’s asking for even more.”
Reddit founders Alexis Ohanian (L) and Steve Huffman (R)
Reddit, a site with 60,000 daily active moderators hosting forums on topics from the mainstream to the extremely obscure, plans to sell shares at $31 to $34 a piece in its IPO, potentially valuing the company at around $6.5 billion, and trade under ticker symbol “RDDT.” At the tech market peak in 2021, Reddit was valued by private investors at $10 billion, according to PitchBook.
Reddit’s directed share program, or DSP, is intended for certain U.S.-based users with high site-wide reputations — measured in so-called Karma points — or for moderators, as a way to “recognize those who have contributed significantly to Reddit over the years,” the company said in explaining the offering. In total, Reddit said underwriters have reserved 1.76 million of the 8 million shares in the IPO for the DSP.
Some invitees say they’re worried about the company’s financial situation. Reddit recorded a net loss of $90.8 million last year, an improvement from 2022, when its deficit came it at $158.6 million. The company said in its prospectus that it’s racked up a cumulative loss of $716.6 million.
Reddit is competing for advertising dollars in a notoriously difficult market against the likes of Google and its YouTube service, Facebook‘s apps and TikTok. In its filing, Reddit also names as competitors Wikipedia, Snap, X, Pinterest, Roblox, Discord and Amazon’s Twitch.
A moderator with username BuckRowdy, who spoke on condition that his real name not be disclosed, told CNBC that he’s passing on the IPO, and said his sentiment appears to be widely shared.
“People do seem to have like a negative view that it’s going to go down immediately or you’re going to lose money,” said BuckRowdy, who moderates subreddits including r/UnresolvedMysteries and r/TrueCrime. “I don’t see anybody in any spaces I’m in that are taking it seriously, that are thinking of it as an investment or anything along those lines.”
Reddit didn’t provide a comment for this story.
Meme stocks
Of all companies, Reddit knows something about stock market volatility.
The site is home to the infamous r/wallstreetbets subreddit that helped spur the 2021 boom in meme stocks like GameStop and AMC Entertainment, which rose with meteoric speed despite any changes in their business fundamentals.
It’s a risk the company acknowledges in its IPO filing:
“Given the broad awareness and brand recognition of Reddit, including as a result of the popularity of r/ wallstreetbets among retail investors, and the direct access by retail investors to broadly available trading platforms, the market price and trading volume of our Class A common stock could experience extreme volatility for reasons unrelated to our underlying business or macroeconomic or industry fundamentals, which could cause you to lose all or part of your investment if you are unable to sell your shares at or above the initial offering price.”
Joshua White, an assistant professor of finance at Vanderbilt University, said Reddit’s DSP could be “nice stocking stuff” if it were to follow the lead of companies that went public in 2020 and 2021.
“This is usually a good deal because really hot IPO stocks typically go up on the first day,” White said.
However, given the dearth of tech IPOs since the start of 2022, White said Reddit’s offering is “probably a little more risky.”
While there’s plenty of skepticism heading into the IPO, some Redditors appear poised to get in on the action, based on forum commentary.
A Reddit user with the handle FormicaDinette33 said in the r/RedditIPO subreddit that they plan to purchase 10 shares “just to experience the process,” while SpindriftRascal plans to spend $5,000, an amount allowing them to “to be happy if it does well and not care much if it tanks,” according to a post.
Sweatycat, a moderator of the r/IAmA and r/LifeProTips subreddits, plans to participate in the IPO, telling CNBC they “both like Reddit as a company and see this as a potentially good investment opportunity.” The Redditor, who asked not to be identified further, said other moderators may have “mixed feelings” about Reddit going public because of their “strained relationship” with management.
For wrestlegirl, who moderates the AEWOfficial subreddit for over 100,000 wrestling fans, the stock purchase program is “a nice enough thing to offer, but it’s not a reward of any sort” and doesn’t project to be a “long-term stable investment.”
Wrestlegirl, who also asked not to be named, told CNBC that owning the stock may be “something fun to have or an amusing experience to talk about later, but I don’t think anyone is actually taking Reddit’s public offering seriously.”
‘It’s being mocked so much’
Akaash Maharaj is ineligible for the program as a Canadian resident. He said he would decline an invitation to participate even if he could, largely because of concerns about the business. He also says moderators shouldn’t be motivated to improve the company’s share price at the expense of the “long-term identity of the platform.”
“There are very few Redditors who I would say are enthusiastic about the IPO,” Maharaj told CNBC.
For roughly five years, Maharaj has helped moderate the forum r/Equestrian, consisting of 72,000 horse lovers. He’s also a member of the Reddit Mod Council, a select group of power users who gather with the goal of improving the site and, in his words, to “make decisions that are in everyone’s interest.”
“Our track record there is mixed,” Maharaj said, with a chuckle.
Even though he’s dubious about the IPO and not particularly bullish on the stock, Maharaj said the DSP could be a “very shrewd” way for management to invite participation and fend off any effort by the Reddit community to spoil a major moment in the company’s history.
“Had they not done that, there would have been a heightened risk that more Redditors would have rhetorically run down the stock as it goes to market,” Maharaj said. The company is saying, “Look, buy some shares and you might make money, but you only make money if you don’t do something to disrupt the IPO itself,” he said.
Wrestlegirl said that despite the swarm of negativity she’s seeing among moderators, she thinks a decent number of them will participate in the IPO.
“It’s being mocked so much it’s almost a meme,” she said. “I think a lot of those jeering secretly don’t want to be left out of things if this turns into a GameStop.”
Courtnie Swearingen says she won’t be one of them.
Swearingen, an attorney, has been a Reddit moderator for about 13 years, currently for forums on music and on her hometown of Chicago. Over that time, she’s built up a distrust of the company. In 2015, after the controversial firing of a Reddit employee named Victoria Taylor, hundreds of moderators locked their subreddits in a protest effort led by Swearingen.
Swearingen told CNBC that after that ordeal, Reddit flew her and other moderators to San Francisco to collect feedback and to clear the air. But she hasn’t seen much change for the better, and no longer expects it.
“Every time anything is promised, or new ideas are presented, it’s never done well and it never goes well,” Swearingen said. “Even with the opportunity to buy in, I would not. I cannot risk money on a company that I haven’t been able to trust for a decade.”
— CNBC’s Cameron Costa contributed to this report
Microsoft CEO Satya Nadella speaks during the Microsoft Build conference at Microsoft headquarters in Redmond, Washington, on May 21, 2024.
Jason Redmond | AFP | Getty Images
A half-century ago, childhood friends Bill Gates and Paul Allen started Microsoft from a strip mall in Albuquerque, New Mexico. Five decades and almost $3 trillion later, the company celebrates its 50th birthday on Friday from its sprawling campus in Redmond, Washington.
Now the second most valuable publicly traded company in the world, Microsoft has only had three CEOs in its history, and all of them are in attendance for the monumental event. One is current CEO Satya Nadella. The other two are Gates and Steve Ballmer, both among the 11 richest people in the world due to their Microsoft fortunes.
While Microsoft has mostly been on the ascent of late, with Nadella turning the company into a major power player in cloud computing and artificial intelligence, the birthday party lands at an awkward moment.
The company’s stock price has dropped for four consecutive months for the first time since 2009 and just suffered its steepest quarterly drop in three years. That was all before President Donald Trump’s announcement this week of sweeping tariffs, which sent the Nasdaq tumbling on Thursday and Microsoft down another 2.4%.
Cloud computing has been Microsoft’s main source of new revenue since Nadella took over from Ballmer as CEO in 2014. But the Azure cloud reported disappointing revenue in the latest quarter, a miss that finance chief Amy Hood attributed in January to power and space shortages and a sales posture that focused too much on AI. Hood said revenue growth in the current quarter will fall to 10% from 17% a year earlier
Nadella said management is refining sales incentives to maximize revenue from traditional workloads, while positioning the company to benefit from the ongoing AI boom.
“You would rather win the new than just protect the past,” Nadella told analysts on a conference call.
The past remains healthy. Microsoft still generates around one-fifth of its roughly $262 billion in annual revenue from productivity software, mostly from commercial clients. Windows makes up around 10% of sales.
Meanwhile, the company has used its massive cash pile to orchestrate its three largest acquisitions on record in a little over eight years, snapping up LinkedIn in late 2016, Nuance Communications in 2022 and Activision Blizzard in 2023, for a combined $121 billion.
“Microsoft has figured out how to stay ahead of the curve, and 50 years later, this is a company that can still be on the forefront of technology innovation,” said Soma Somasegar, a former Microsoft executive who now invests in startups at venture firm Madrona. “That’s a commendable place for the company to be in.”
When Somasegar gave up his corporate vice president position at Microsoft in 2015, the company was fresh off a $7.6 billion write-down from Ballmer’s ill-timed purchase of Nokia’s devices and services business.
Microsoft is now in a historic phase of investment. The company has built a $13.8 billion stake in OpenAI and last year spent almost $76 billion on capital expenditures and finance leases, up 83% from a year prior, partly to enable the use of AI models in the Azure cloud. In January, Nadella said Microsoft has $13 billion in annualized AI revenue, more even than OpenAI, which just closed a financing round valuing the company at $300 billion.
Microsoft’s spending spree has constrained free cash flow growth. Guggenheim analysts wrote in a note after the company’s earnings report in January, “You just have to believe in the future.”
Of the 35 Microsoft analysts tracked by FactSet, 32 recommend buying the stock, which has appreciated tenfold since Nadella became CEO. Azure has become a fearsome threat to Amazon Web Services, which pioneered the cloud market in the 2000s, and startups as well as enterprises are flocking to its cloud technology.
Winston Weinberg, CEO of legal AI startup Harvey, uses OpenAI models through Azure. Weinberg lauded Nadella’s focus on customers of all sizes.
“Satya has literally responded to emails within 15 minutes of us having a technical problem, and he’ll route it to the right person,” Weinberg said.
Still, technology is moving at an increasingly rapid pace and Microsoft’s ability to stay on top is far from guaranteed. Industry experts highlighted four key issues the company has to address as it pushes into its next half-century.
Microsoft didn’t respond to a request for comment.
Regulation
There’s some optimism that the Trump administration and a new head of the Federal Trade Commission will open up the door to the kinds of deal-making that proved very challenging during Joe Biden’s presidency, when Lina Khan headed the FTC.
But regulatory uncertainty remains.
It’s not a new risk for Microsoft. In 1995, the company paid a $46 million breakup fee to tax software maker Intuit after the Justice Department filed suit to block the proposed deal. Years later, the DOJ got Microsoft to revamp some of its practices after a landmark antitrust case.
Microsoft pushed through its largest acquisition ever, the $75 billion purchase of video game publisher Activision, during Biden’s term. But only after a protracted legal battle with the FTC.
At the very end of Biden’s time in office, the FTC opened an antitrust investigation on Microsoft. That probe is ongoing, Bloomberg reported in March.
Nadella has cultivated a relationship with Trump. In January, the two reportedly met for lunch at Trump’s Mar-a-Lago resort in Florida, alongside Tesla CEO Elon Musk.
President Donald Trump shakes hands with Microsoft CEO Satya Nadella during an American Technology Council roundtable at the White House in Washington on June 19, 2017.
Nicholas Kamm | AFP | Getty Images
The U.S. isn’t the only concern. The U.K.’s Competition and Markets Authority said in January that an independent inquiry found that “Microsoft is using its strong position in software to make it harder for AWS and Google to compete effectively for cloud customers that wish to use Microsoft software on the cloud.”
Microsoft last year committed to unbundling Teams from Microsoft 365 productivity software subscriptions globally to address concerns from the European Union’s executive arm, the European Commission.
Noncore markets
Fairly early in Microsoft’s history the company became the world’s largest software maker. And in cloud, Microsoft is the biggest challenger to AWS. Most of the company’s revenue comes from corporations, schools and governments.
But Microsoft is in other markets where its position is weaker. Those include video games, laptops and search advertising.
Mary Jo Foley, editor in chief at advisory group Directions on Microsoft, said the company may be better off focusing on what it does best, rather than continuing to offer Xbox consoles and Surface tablets.
“Microsoft is not good at anything in the consumer space (with the possible exception of gaming),” wrote Foley, who has covered the company on and off since 1984. “You’re wasting time and money on trying to figure it out. Microsoft is an enterprise company — and that is more than OK.”
It’s unlikely Microsoft will back away from games, particularly after the Activision deal. Nearly $12 billion of Microsoft’s $69.6 billion in fourth-quarter revenue came from gaming, search and news advertising, and consumer subscriptions to the Microsoft 365 productivity bundle. That doesn’t include sales of devices, Windows licenses or advertising on LinkedIn.
“As a company, Microsoft’s all-in on gaming,” Nadella said in 2021 in an appearance alongside gaming unit head Phil Spencer. “We believe we can play a leading role in democratizing gaming and defining that future of interactive entertainment, quite frankly, at scale.”
AI pressure
Microsoft has an unquestionably strong position in AI today, thanks in no small part to its early alliance with OpenAI. Microsoft has added the startup’s AI models to Windows, Excel, Bing and other products.
The breakout has been GitHub Copilot, which generates source code and answers developers’ questions. GitHub reached $2 billion in annualized revenue last year, with Copilot accounting for more than 40% of sales growth for the business. Microsoft bought GitHub in 2018 for $7.5 billion.
Microsoft CEO Satya Nadella, right, speaks as OpenAI CEO Sam Altman looks on during the OpenAI DevDay event in San Francisco on Nov. 6, 2023.
Justin Sullivan | Getty Images
But speedy deployment in AI can be worrisome.
The company is “not providing the underpinnings needed to deploy AI properly, in terms of security and governance — all because they care more about being ‘first,'” Foley wrote. Microsoft also hasn’t been great at helping customers understand the return on investment, she wrote.
AI-ready Copilot+ PCs, which Microsoft introduced last year, aren’t gaining much traction. The company had to delay the release of the Recall search feature to prevent data breaches. And the Copilot assistant subscription, at $30 a month for customers of the Microsoft 365 productivity suite, hasn’t become pervasive in the business world.
“Copilot was really their chance to take the lead,” said Jason Wong, an analyst at technology industry researcher Gartner. “But increasingly, what it’s seeming like is Copilot is just an add-on and not like a net-new thing to drive AI.”
Innovation
At 50, the biggest question facing Microsoft is whether it can still build impressive technology on its own. Products like the Surface and HoloLens augmented reality headset generated buzz, but they hit the market years ago.
Teams was a novel addition to its software bundle, though the app’s success came during the Covid pandemic after the explosive growth in products like Zoom and Slack, which Salesforce acquired. And Microsoft is still researching quantum computing.
In AI, Microsoft’s best bet so far was its investment in OpenAI. Somasegar said Microsoft is in prime position to be a big player in the market.
“To me, it’s been 2½ years since ChatGPT showed up, and we are not even at the Uber and Airbnb moment,” Somasegar said. “There is a tremendous amount of value creation that needs to happen in AI. Microsoft as much as everybody else is thinking, ‘What does that mean? How do we get there?'”
Technology
Nvidia positioned to weather Trump tariffs, chip demand ‘off the charts,’ says Altimeter’s Gerstner
Altimeter Capital CEO Brad Gerstner said Thursday that he’s moving out of the “bomb shelter” with Nvidia and into a position of safety, expecting that the chipmaker is positioned to withstand President Donald Trump’s widespread tariffs.
“The growth and the demand for GPUs is off the charts,” he told CNBC’s “Fast Money Halftime Report,” referring to Nvidia’s graphics processing units that are powering the artificial intelligence boom. He said investors just need to listen to commentary from OpenAI, Google and Elon Musk.
President Trump announced an expansive and aggressive “reciprocal tariff” policy in a ceremony at the White House on Wednesday. The plan established a 10% baseline tariff, though many countries like China, Vietnam and Taiwan are subject to steeper rates. The announcement sent stocks tumbling on Thursday, with the tech-heavy Nasdaq down more than 5%, headed for its worst day since 2022.
The big reason Nvidia may be better positioned to withstand Trump’s tariff hikes is because semiconductors are on the list of exceptions, which Gerstner called a “wise exception” due to the importance of AI.
Nvidia’s business has exploded since the release of OpenAI’s ChatGPT in 2022, and annual revenue has more than doubled in each of the past two fiscal years. After a massive rally, Nvidia’s stock price has dropped by more than 20% this year and was down almost 7% on Thursday.
Gerstner is concerned about the potential of a recession due to the tariffs, but is relatively bullish on Nvidia, and said the “negative impact from tariffs will be much less than in other areas.”
He said it’s key for the U.S. to stay competitive in AI. And while the company’s chips are designed domestically, they’re manufactured in Taiwan “because they can’t be fabricated in the U.S.” Higher tariffs would punish companies like Meta and Microsoft, he said.
“We’re in a global race in AI,” Gerstner said. “We can’t hamper our ability to win that race.”
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