Apr 1, 2024 - Business

Reddit and Trump Media both went public. How much did they leave on the table?

Illustration of a pile of dollar bills.

Illustration: Shoshana Gordon/Axios

It's a perennial debate in the capital markets: If a stock pops on the first day it's listed, does that mean it was underpriced, and that the company issuing the stock could and should have raised more money from the same number of shares?

Why it matters: Reddit's pop, in a traditional IPO last month, was big — but the Trump Social pop, from a SPAC a few days later, was in many ways even bigger.

How it works: SPACs, or special purpose acquisition companies, were designed to be a backdoor way for companies to go public. Rather than listing shares directly on the stock exchange, a company like Trump Media would agree to get acquired by a company that was already listed, but had no real assets other than cash.

  • In this case the company was Digital World Acquisition Corp., or DWAC. After DWAC acquired Trump Media, it changed its ticker symbol to DJT — Donald Trump's initials.

By the numbers: When DWAC went public in September 2021, it raised $293 million at $10 per share. (It also tried to raise an additional $1 billion through something known as a PIPE, but that fell through.)

  • On its first day of trading last week, DJT stock opened at $70.90 per share, making those shares worth $2.1 billion.
  • The total money left on the table, calculated as market value of shares minus amount raised, was therefore $1.79 billion.

Meanwhile: In Reddit's IPO, the company sold 18.6 million shares at $34 each, raising $632 million.

  • When the stock opened at $48.88 per share, those shares were worth $909 million, representing $277 million left on the table.

Between the lines: The huge difference between the two deals is that investors who bought in at Reddit's IPO price had to wait less than 24 hours to earn their profits.

  • DWAC investors, by contrast, had to wait 30 months. It's also worth noting that when they bought into the IPO, they had no way of suspecting the company might end up becoming a Trump-affiliated meme stock.

The bottom line: Trump Media had a long and messy road to going public — which maybe helps explain how inefficient the whole process was.

  • Reddit was also inefficient, judging by its pop, but it — unlike Trump Media — hired high-priced bankers to work on its behalf and do the best deal possible for the company.
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