Shares in the $2.7bn family networking app Life360 rallied almost three per cent on the ASX following strong demand in the US for the initial public offering of social media company Reddit.
The IPO of Reddit was priced on Thursday morning local time at $US34 ($51.34) a share, which is at the top end of its $US31 to $US34 price range ahead of the debut Thursday night on the New York Stock Exchange.
Life360 shares were up 1.8 per cent to $13.19 on Thursday afternoon, after touching an intraday high of $13.47.
Analysts at Bell Potter say that the IPO equates to a valuation of $US6.4bn and a historical revenue multiple of eight times.
By comparison, Life360 trades on a historical revenue multiple of just under 5 times, based on a share price on Thursday of $13.38.
They explain that Reddit is seen as a reasonable comparable for Life360, and a strong listing overnight could be a potential catalyst for Life360.
“It will highlight the valuation gap and may also prompt Life360 to restart the process of a dual listing in the US on either the NASDAQ or NYSE.”
When the company that offers family communication, location and alert apps for smartphones first listed in Australia in 2019, it was priced at $4.79 per chess depositary interest, where its equity value was $US500m, and it equalled 8.3 times its forecast 2019 revenue.
At that time, it was thought that there could be other profitable options that could be added to the business, such as car insurance or advertising.
Founded by Chris Hulls and Alex Haro, the San Francisco-based Life360 offers users on computer and phone devices the ability to track family members and share locations.
It has 61 million active users and although its revenue is over $300m, but a loss from ordinary activities of $28m, down 69 per cent.
In 2021, Life360 purchased the Tile the technology for about $283m that enables users to track devices, with 45 million sold.
Reddit has about 60m to 70 million users, and its strategy to monetise the business involves selling content to artificial intelligence companies and also advertising.
The Wall Street Journal reported that with the deal priced at the high end of the range, it could be a sign that investor enthusiasm could be returning for new issues.
Yet despite the company value at $US6.4bn being at a value higher-than-expected, it’s still below the $US10bn valuation it reached in 2021.
Reddit placed a large portion of its IPO in the hands of its most prolific users and also reserved a portion for individual investors, an unusual move that could make the stock more volatile.
The company set a relatively conservative price range for the offering, in part because it was cognisant that its loyal users would be buying the stock at the IPO price, sources said.
Many of Reddit’s users are bearish on the stock’s prospects, though it remains to be seen how much those outspoken users could influence the stock’s price, if at all.
Redditors on the company’s infamous WallStreetBets message board and other subreddits, communities within Reddit focused on specific topics, have posted in recent weeks that they plan to avoid buying Reddit’s stock and may even bet against it by way of shorting the company.
While a strong pricing doesn’t guarantee Reddit’s stock will trade well, it is typically an encouraging sign.
Working on the IPO is Morgan Stanley.
-With The Wall Street Journal
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