Reddit stock soars 48% on debut! Will the ASX IPO market heat up again?

It was a great first day for Reddit.

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The Reddit Inc (NYSE: RDDT) stock price had an incredible start to life on the stock market, rising by 48%!

This social media platform allows users to discuss topics of almost anything you can think of such as TV shows, the news, jokes, sports, personal finance and ask-me-anything Q&As.   

It's been a while since a large social media business listed on the stock market. The rising interest rate environment put a dampener on large initial public offerings (IPOs) in the US and Australia.

But, could Reddit's stock success spur a new wave of listings?

Tapping into AI excitement

According to reporting by Reuters, Reddit recently signed a content licensing deal with Alphabet's Google worth around $60 million per year. Reddit is making its content available for Google to train its artificial intelligence models.

However, Reddit still makes most of its revenue from advertising, which is a competitive area.

While the IPO was priced at US$34 per share, it finished the day's trading at $50.44, which was a rise of just over 48%.

The chief operations officer from Reddit, Jen Wong, said:

At the core we are a growth company. Achieving our mission means that we want to grow users and community.

While Reddit has a large social presence and is a core digital destination where lots of people spend time on the internet, its valuation is only several billion US dollars, compared to more than US$1 trillion for Meta Platforms. Reddit has a lot of work to do to make a sizeable profit.

Can this excite the local ASX IPO market?

Reddit doesn't get as much visitation as Facebook, YouTube, Instagram, TikTok or a few others, but it's still one of the most visited digital sites, reportedly just behind LinkedIn in terms of where US social media users go, according to Statista.

There are currently only five ASX IPO listings planned at the moment – they are all small, with raisings of between $5 million to $10 million planned.

However, we should also remember that Chemist Warehouse is planning a reverse listing via Sigma Healthcare Ltd (ASX: SIG).

I don't have any inside information about which businesses are planning to list next, but I think Reddit's success and the ongoing strength of the overall ASX share market are very positive for potential listings.

I'm not sure the ASX will be able to attract the likes of Canva, but the foundations are there for smaller businesses to want to take advantage of the desire of investors for growing businesses.

While I wouldn't necessarily be interested in tiny, speculative, exploration ASX mining shares or small ASX biotech shares, there can be merit in looking at growing companies with smaller market capitalisations. They are earlier on in their growth journeys and could deliver stronger long-term returns.

Of course, there are lots of potential great growth opportunities already on the ASX.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet and Meta Platforms. The Motley Fool Australia has recommended Alphabet and Meta Platforms. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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