New Delhi

Social media company Reddit made a spectacular stock market debut on March 21, with its stock gaining 48 per cent on listing day. The much-anticipated Initial Public Offering (IPO) valued Reddit at $6.4 billion and helped the company raise $748 million from the market.

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Analysts now argue that Reddit's bumper IPO and listing could renew interest in public offerings by tech firms, who have struggled to raise funds this year.

Reddit's recent stock surge, however, is not really in line with market expectations. The reasons are not difficult to find.

Reddit has been a loss-making entity since its launch in 2005. In its recent public disclosure, the company reported a net loss of $90.8 million, even as revenue grew 21 per cent last year.

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The social media platform does not have a large user base, unlike its contemporaries like Meta and X (former Twitter). Its total monthly active users - 267.5 million in 2023 -- dwarfs in front of Facebook (3.049 billion), Instagram (2 billion), or X (619 million).

Analysts have compared its share surge to the 2021 'meme stock' craze, which interestingly began on 'WallStreetBets', a stock market discussion forum on Reddit.  

'Meme stocks' are ones that are widely discussed on social media, leading to a quick surge in the valuation of such stocks. However, their high valuations are not in line with company's performance or fundamental analysis. Such stocks are also considered highly volatile and risky for investors.

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In early 2021, the Reddit group began discussing about GameStop, the world's largest video game retailer. Some users had received information that some big hedge funds were looking to short the company's stock. In simple terms, short sellers look to make a profit out of a declining stock.

Initially, the forum's participants, mostly small retail investors, wanted to join the big short sellers and make money. However, the discussion soon veered towards beating the big hedge funds in their own game.

Thus, began the 'GameStop short squeeze'. By January 28, GameStop's stock price rose to over $500 per share, after standing at just $17.25 in early January. 

The 2,800 per cent jump in the stock price helped small investor earn massive profits. But bigger hedge funds, who anticipated a fall in price, suffered huge losses.

GameStop, a company dubbed as a 'dying relic' for failing to adapt to the changing times, suddenly became the world's first 'meme stock'. In the process, the company became the focal point of a Robinhood-like campaign against top hedge funds.

Now, life has come to a full circle for Reddit. The progenitor of the 'meme stock' could soon join the phenomenon.