Transcript: Reddit hits the road ahead of IPO

This is an audio transcript of the FT News Briefing podcast episode: ‘Reddit hits the road ahead of IPO’

Sonja Hutson
Good morning from the Financial Times. Today is Tuesday, March 12th, and this is your FT News Briefing.

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The EU wants to fund Ukraine’s war effort with Russia’s money. And Reddit’s hitting the road ahead of its IPO. Plus, a new US plan to get more aid into Gaza faces a lot of hurdles.

Neri Zilber
Even if aid is physically able to enter the Gaza Strip, how much is able to be actually dispersed and to reach the people most in need?

Sonja Hutson
I’m Sonja Hutson and here’s the news you need to start your day.

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Brussels wants to give Ukraine up to €3bn of profits from Russia’s frozen assets. These assets were sanctioned after Russia’s full-scale invasion of Ukraine about two years ago. Sources told the FT that the European Commission is preparing a plan to fast track the funding. This is happening as the US struggles to approve more aid for Ukraine. The EU could send Ukraine the first instalment of money as soon as July. That is if Brussels can get approval from member states. The proposal is expected to be brought up at an EU leaders summit next week.

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Reddit released a ton of details yesterday about its upcoming initial public offering. The social media company is hoping to raise more than $500mn, and it’s on a roadshow this week to advertise the IPO to investors. How it all goes down could set the tone for other private start-ups looking to list this year. Here to talk to me about it is the FT’s Anna Mutoh. Hi, Anna.

Anna Mutoh
Hi.

Sonja Hutson
So what exactly did we learn yesterday about Reddit’s plans to go public?

Anna Mutoh
Sure. So what we learned yesterday is that they’re planning on raising just about $500mn. They’re gonna be selling a roughly 22mn shares to the public, and that brings the company valuation to $5.8bn to $6.4bn, which is a significant difference from where they were last valued privately in 2021, which was at $10bn. So they’re planning on pricing the IPO on March 20th, and the stock will start trading the following day. What’s interesting for this particular deal is that they’re listing on the New York Stock Exchange, not Nasdaq, that typically has tech deals. Reddit will be the most high-profile tech listing on NYSE’s since 2020-2021 IPO boom. And they’re gonna do things like dressing all the traders in the floor, decking it out in Reddit’s white and orange colour scheme.

Sonja Hutson
OK, so lots of excitement, at least from the New York Stock Exchange. But how well is Reddit actually performing these days?

Anna Mutoh
Sure. So how well they’re performing is actually very interesting because they have not been profitable in their 19-year history. And in fact, last year they recorded $91mn in losses. Currently, they have $800mn in sales. And most of that comes from advertising revenue. So they’re heavily dependent on ad revenue. On their roadshow, management is going to be talking about additional revenue streams, like selling data, specifically as it relates to AI and machine learning.

Sonja Hutson
All right. So going into an IPO with a $90mn loss the previous year is not the best position to be going into. But what are investors looking out for as, you know, Reddit goes on this roadshow and tries to sell its IPO to investors?

Anna Mutoh
So over the weekend before the roadshow kicked off, I spoke with many, many investors, both long only and some hedge fund people. And there are a few points that they raised. Number one is they wanna see whether AI is gonna be a positive or a negative for Reddit. On the one hand, they’re looking to sell data for AI use, but on the other hand, as AI becomes more robust and competitors like ChatGPT and other social media and search engines utilise AI, then Reddit’s search could become less relevant. So that was one item. The other one is about adult content, ie porn. Currently, Reddit has a lot of adult videos that are being broadcasted, but once they become a public company, that could open up risk for advertisers to potentially shy away. And then also lastly, investors have said they’re worried about potentially getting memed by the notorious Reddit users. I think the most famous one being Wall Street, that’s with GameStop and AMC memes that got pushed up to sky high levels, ultimately putting some famous hedge funds out of business. So that is an area that people are worried about, or at least keeping an eye out as well.

Sonja Hutson
Yeah, well, wouldn’t that be ironic? The platform that was used to meme other stocks, their stock gets memed itself.

Anna Mutoh
Exactly.

Sonja Hutson
And what kind of impact could the company’s IPO have on the broader IPO market?

Anna Mutoh
So it’ll set the tone for the rest of the IPO market for this year, most likely. If you take a look at the S&P 500, it’s been reaching all-time highs. But the IPO market hasn’t been doing too well. In fact, it’s been pretty weak for more than two years. And a lot of that has to do with high interest rates. And some investors said that there just haven’t been that many great companies coming to the market. So this is kind of like the first significant, well-known name that is gonna be coming, especially in the tech space. And it could be a litmus test to see how aggressive or cautious the bankers are gonna be in this jittery IPO market.

Sonja Hutson
That’s the FT’s Anna Mutoh. Thanks, Anna.

Anna Mutoh
You’re welcome. Thank you.

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Sonja Hutson
US President Joe Biden announced last week that he was stepping up food and aid delivery into Gaza. International aid groups in the US have been sending some food to the strip, but it hasn’t been enough. And now people there are on the brink of starvation. Here to talk about whether this new operation can work is Neri Zilber. He covers the Israel-Hamas war for the FT. Hi, Neri.

Neri Zilber
Hi. Good to be back with you.

Sonja Hutson
Good to have you back. So, can you paint a picture for us about just how bad the food situation is in Gaza?

Neri Zilber
Well, as I’m sure most of our listeners know, the situation is very dire inside the Gaza Strip now, five months into the war. Most, if not all of the domestic production has been severely affected inside Gaza. And so it’s almost wholly dependent on the import of food and other humanitarian aid. And so the question really is how much aid has been able to enter, contingent on a fairly strict Israeli inspection regime that was put in place in the immediate aftermath of October 7th. And then really over the past month or two, even if aid is physically able to enter the Gaza Strip, how much is able to be actually dispersed and to reach the people most in need?

Sonja Hutson
Neri, what are some of the issues that these aid groups are running into when trying to actually disperse this aid to people in Gaza?

Neri Zilber
So we should differentiate between south Gaza and north Gaza. North Gaza was the very beginning of the Israeli ground offensive in late October. And combined with that, Israel encouraged the vast majority of the million plus people residing in north Gaza to move southward. So now you have a situation in north Gaza that’s almost completely cut off from south Gaza, and people there on the brink of famine. Just based on the fact that a scant amount of aid has been able to make its way from the south to the north. And really, in recent months, you’ve had a situation where either desperate Gazans or sometimes even criminal gangs are attacking and looting the aid convoys. So effectively a breakdown of law and order. And it’s become very, very difficult for the UN and other international aid groups to actually move aid around the Gaza Strip and to get it to the people most in need.

Sonja Hutson
Yeah. So tell me a little bit about President Biden’s latest plans to get around some of those issues and actually get more aid into Gaza.

Neri Zilber
So obviously, the big headlines were made by the Biden administration announcing the floating pier that it’s sending over from Virginia as we speak. And so that will be set up, we believe, off the coast of north Gaza to move aid in via ship. We don’t have too much clarity about how it would actually work in terms of aid distribution. There are some ideas or suggestions that the Israeli military would actually secure the aid. I find that a bit hard to believe because Israel at present doesn’t have a real permanent military presence in north Gaza on the coast. So that would be something that the Israeli military would have to agree to. Other ideas would be perhaps local actors, local clans assisting in the securing and dispersing of the aid. Some people have suggested that, well, you have no other alternative but to work with Hamas. So again, there are various ideas out there. How it would work in practice is still unclear.

Sonja Hutson
So, Neri, what needs to happen in order to really solve this hunger crisis?

Neri Zilber
Look, from all the international aid workers and officials that I’ve spoken to and even Biden administration officials, they say one thing. You need to flood Gaza with as much aid as you can. And the thinking goes, that would solve two problems. Number one, obviously, it would get more aid to the people who most need it. But number two, thinking goes, is that more aid would undercut the growing black market that we’re seeing now inside Gaza and would demotivate the criminal gangs, working and operating inside Gaza from attacking and looting. So essentially flood Gaza with as much aid as you can. And that would require not a maritime corridor, which makes a lot of headlines, but is technically and operationally complicated. What would be required is overland routes of aid convoys via more crossings, especially to north Gaza. And that would require real facilitation and real buy in and a political decision by the Israeli government.

Sonja Hutson
Neri Zilber covers the Israel-Hamas war for the FT. Thanks, Neri.

Neri Zilber
My pleasure.

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Sonja Hutson
You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.