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Reddit’s stock price soared from $34 per share to over $50 per share on its first day of trading, with a final market cap of around $8.2billion.
It signaled an encouraging initial public offering (IPO) for the social media platform, which was much anticipated after a two-year wait as significant stock market volatility, caused by interest rate hikes and Russia’s War in Ukraine, eased.
The past two years have brought positive news for Reddit. Revenue jumped 20% from 2022 to 2023 and net losses dropped by $67.8million.
Speaking to Yahoo Finance, Steve Huffman, co-founder and CEO at Reddit, also claims that in the second half of 2023, the company was profitable on an adjusted EBITDA basis. “I think if we can keep doing that we're in great shape,” he explained ahead of Thursday’s IPO. “We have such high margins that if [we] just continue to sell and be mindful about costs, this company scales in a really impressive way."
However, it’s still early days. And if history teaches us anything, it’s that this will begin the start of a tricky period for Reddit and its business leaders, particularly HR teams.
Post-IPO Reddit could look very different
As start-ups begin to scale and seek out new revenue streams pre-IPO, investment – thanks to multi-million dollar funding rounds – is often free-flowing. But the closer a company gets to trading publicly, the more pressure there is to become profitable.
This is certainly true for Reddit, which has yet to record an annual profit since its inception in 2005. Nearly all of its revenue is driven by advertising, and though it is exploring AI as an area of growth, by its own admission it will be heavily focused on user growth to drive this stream of income.
“Achieving our mission means that we want to grow users and community," said Jen Wong, Chief Operations Officer at Reddit. Reddit’s average revenue per user (ARPU) declined in 2023, falling 7.1% in Q4, whilst Meta’s jumped 2.4%.
In short, there will be heavy scrutiny from investors about how Reddit will achieve profitability, particularly among staunch competition from the likes of Meta, it’s likely that departments will be under significant pressure to eliminate efficiencies and cut costs.
How might this affect HR? Well, where else to turn but Reddit. One user notes about their experience at another company, “after the IPO there was a HUGE focus on the bottom line. To the point that they started cutting benefits (ours were previously above average) and really reducing spending.”
Whilst this is just one perspective for one company, it underpins that all departments will be under scrutiny. HR will be under pressure to drive productivity, to ensure efficient work allocation, including the possibility of layoffs, and may even face budget cuts to their own department.
Uber, for example, famously struggled for profitably after its IPO in 2019 and made cut backs including laying off a third of its marketing team just two months after its initial listing.
Beyond shareholder pressure to cut costs, Reddit’s HR team will likely be tasked with handling an exodus of employees.
Eventually, as their stock vests and they are released from their golden handcuffs, employees are financially free to pursue employment elsewhere.
Moreover, company culture post-IPO Is vastly different. Much of the promise that attracted them to the company disappears. The focus on innovation, growth, and risk-taking, rewarded with huge equity upside is gone, and they are no longer working in an environment that suits their skills, experience, or preference for company culture.
Zynga, for example, faced a mass exodus when it went public on 2011. “I expect a lot of game and tech companies will begin recruiting Zynga’s talent after their equity becomes liquid,” said Gabrielle Toledano, Electronic Art’s then-head of HR. “Competitors will make the case that they offer much more compelling opportunities for creative people.”
Retention will become a significant challenge, as will identifying the right talent to help Reddit succeed in its new phase.
Often, IPOs signal leadership changes. Pushing rapid pre-IPO scale and achieving post-IPO profitability often requires very different C-suite profiles. Revisiting the Uber example, again within the first two months, its COO and CMO were given the boot, and several board members stepped down.
It will be up to Reddit’s HR and talent acquisition team to navigate this inevitable period of churn.
There are also issues specific to Reddit. Many have highlighted that Reddit relies heavily on unpaid labor from its volunteer moderators, plenty of whom are highly critical of the IPO and have said they are happy to ditch the platform if they aren’t happy with changes.
“The moderators are unpaid. It takes thousands upon thousands upon thousands of mods to make reddit work… This is just a cash grab by ownership and the money raised isn't going to go into improving the site or business in any way,” writes one user.
Reddit, among all its other issues, may have to find a way to replace the output of volunteer labor it isn’t yet paying for.
So, yes, day one of publicly traded life was no doubt a success for Reddit and is worthy of celebration. But like every company that chooses the IPO route, there are culture, talent, and cost concerns ahead for its HR team to manage.
