The popular social media platform Reddit RDDT celebrated a triumphant entry to the New York Stock Exchange on Thursday, with its shares skyrocketing 48% on debut, reaching a market capitalization of $9.5 billion. Reddit's success, marked by selling $748 million in shares, has ignited hopes for a revived IPO market, which has been sluggish since 2021. Shares slumped 8.8% on Friday, probably on profit booking.

ETFs in Focus

The market debut of Reddit could pave its entry into a number of ETFs in the coming days. Investing in IPO ETFs could be a compelling way to enter the IPO business without directly investing in individual companies. IPO ETFs are funds that invest in a basket of companies that have recently gone public, providing diversified exposure to the IPO market. Plus, the stock may be included in several sector ETFs that align with the space Reddit operates in.

These ETFs include Renaissance IPO ETF IPO, First Trust US Equity Opportunities ETF FPX, Communication Services Select Sector SPDR Fund XLC, Global X social media ETF SOCL, Invesco NASDAQ Internet ETF PNQI and Invesco AI and Next Gen Software ETF IGPT.

Reddit’s User Metrics and Engagement

In the three months leading up to December 31, 2023, Reddit boasted an average of 73.1 million daily active users and 267.5 million weekly active users. The platform also noted the presence of over 100,000 active communities and a remarkable 1 billion cumulative posts. These metrics underscore Reddit's broad user base and vibrant community engagement.

Strategic Partnership With Google and Valuation

Before its IPO, Reddit secured a strategic partnership with Alphabet's Google (GOOGL), indiacting its intent to leverage artificial intelligence capabilities. The deal, estimated at $60 million annually, highlights Reddit's commitment to enhancing its platform.

The deal allows Google to train AI models on its posts. Moreover, Sam Altman, renowned for his role at OpenAI, has invested over $60 million in Reddit, securing a 9.2% share of the voting power within the online discussion platform.

Reddit's journey to the public market reflects a broader transformation for the platform, from a fringe community to a mainstream discussion hub. Despite initial reservations, Reddit's IPO has been well-received, indicating robust public investor interest in new listings, even for unprofitable entities like Reddit.

Financial Windfall for CEO Huffman

The IPO proved lucrative for Reddit's CEO, Steve Huffman, who sold a significant portion of his shares, netting $17 million. The need to attract advertisers and satisfy Wall Street expectations has led Reddit to a shift toward a more controlled and profitable model. AI technology has become a crucial point in Reddit's strategy, as indicated in its recent IPO prospectus.

ETF Discussions

Below we highlight a few ETFs that should be tracked in light of Reddit IPO.

Renaissance IPO ETF (IPO)

The underlying Renaissance IPO Index captures approximately 80% of the total market capitalization of newly companies that have gone public within the last three years & meet certain size, liquidity & free float criteria. At each quarterly rebalance, new IPOs that meet the eligibility criteria are included & companies that have been public for three years or that no longer meet the criteria are removed. The fund charges 60 bps in fees.

First Trust US Equity Opportunities ETF (FPX)

The underlying IPOX-100 U.S. Index is a modified value-weighted price index measuring the performance of the top 100 companies ranked quarterly by market capitalization in the IPOX Composite U.S. Index. The IPOX Composite U.S. Index is a rules-based value-weighted index measuring the average performance of U.S. IPOs during their first 1,000 trading days. The fund charges 60 bps in fees.

Communication Services Select Sector SPDR Fund (XLC)

The underlying Communication Services Select Sector Index seeks to provide an effective representation of the communication services sector of the S&P 500 Index. The fund charges 10 bps in fees.

Global X Social Media ETF (SOCL)

The underlying Solactive Social Media Index is designed to reflect the performance of companies involved in the social media industry, including companies that provide social networking, file sharing, and other web-based media applications. The fund charges 65 bps in fees.

Invesco NASDAQ Internet ETF (PNQI)

The underlying Nasdaq CTA Internet Index is a modified market-capitalization weighted index designed to track the performance of the largest & most liquid U.S.-listed companies engaged in internet-related businesses & that are listed on one of the three major U.S. stock exchanges. The fund charges 60 bps in fees.

Invesco AI and Next Gen Software ETF (IGPT)

The underlying STOXX World AC NexGen Software Development Index is comprised of companies with significant exposure to technologies or products that contribute to future software development through direct revenue. The fund charges 60 bps in fees.

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Global X Social Media ETF (SOCL): ETF Research Reports

Renaissance IPO ETF (IPO): ETF Research Reports

Invesco NASDAQ Internet ETF (PNQI): ETF Research Reports

First Trust US Equity Opportunities ETF (FPX): ETF Research Reports

Communication Services Select Sector SPDR ETF (XLC): ETF Research Reports

Invesco AI and Next Gen Software ETF (IGPT): ETF Research Reports

Reddit Inc. (RDDT): Free Stock Analysis Report

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