Reddit Inc. filed for an initial public offering with the U.S. Securities and Exchange Commission on Feb. 22.

Reddit had been waiting to go public since its confidential IPO filing in 2021 but delayed its debut due to volatile market conditions. This makes it the largest social media platform to go public since Pinterest Inc. in 2019.

According to Bloomberg, Reddit is seeking a valuation of $5 billion — previously valued at $10 billion in a private funding round in 2021 — and is looking to debut in March.

Reddit’s prospectus showcases a 20% increase in revenue totaling $804 million, with 98% of its revenue coming from its advertising business, and a 42.7% decrease in net loss equating to $90.8 million. The filing revealed that OpenAI founder Sam Altman is the third largest shareholder with $60 million worth of shares, translating into 8.7% ownership of stock split between class A and class B shares.  

Class A shares are premium shares with more voting power, while class B shares are common shares with no additional voting power. Combined, Altman has 9.2% voting power within Reddit. 

Additionally, Reddit disclosed 73 million average daily average unique visitors, and its global average revenue per user was $3.42, representing a 27% increase and a 2% decrease, respectively. 

Reddit co-founder and CEO Steve Huffman compared Reddit to a “growing city” that houses many communities under a common infrastructure and that they are going public to become a stronger company. He added that the company’s growth opportunities include “advertising, monetizing commerce on the platform and licensing data.” 

Shortly after the prospectus was released, Reddit signed a $60 million deal with Alphabet Inc. that allows Google to use Reddit’s data to train and improve its artificial intelligence models and search engines. 

Reddit cited that the total addressable market from advertising, excluding China and Russia, is $1 trillion, but its expected compounded annual growth rate of 8% will push it to $1.4 trillion in 2027.

Despite strong opportunities, Reddit listed 55 pages worth of risk factors, revealing a strong dependence on its user base and unpaid moderators along with a history of net losses and intense competition, causing investors to worry about its scalability and profitability.                           

Reddit moderators volunteer to help create and guide the Reddit community by setting parameters such as age restrictions to determine if the content posted within a subreddit violates Reddit’s policies.

However, Reddit acknowledged that moderators have a strong sense of stewardship in the communities they create and have reserved shares for 75,000 power users.

“Our users have a deep sense of ownership over the communities they create on Reddit,” Huffman wrote in a letter. “We want this ownership to be reflected in real ownership — for our users to be owners.” 

Typically, a company would reserve shares for its biggest institutional investors, but giving the biggest users of the platform access to share trades freely will create price fluctuations and volatility in the stock, raising investors’ concerns.

“From an institutional perspective, we’ve seen over time that institutions are less interested in these unprofitable companies,” Brianne Lynch, head of market insights at EquityZen said on an episode of Bloomberg Technology. “And Reddit is interesting because they are a 19-year-old business, they really didn’t start monetizing it until 2009 so their monetization engine is relatively young and unproven and advertising is 98% of that engine now.”

Investors compared Reddit to other social media companies, noting that despite being around for nearly two decades, its user growth and profitability are less than those of its competitors, such as Meta Platforms Inc. 

“It just wasn’t very impressive [the prospectus], I mean this company has been around for 19 years. It has 72 million daily active users, that’s 410 million less than when Facebook went public, and that was in 2012, 2013 when they filed,” Alex Kantrowitz, Big Technology founder, said on an episode of CNBC’s Squawk Box. “So you look and say, ‘They don’t have the user growth, they’re losing money,’ and you start to say, ‘Where does this company actually have a chance in the eyes of investors?’ Maybe it’s AI, but I don’t think it’s the traditional social network path, which is user growth and advertising.”