Reddit's debut made a splash, but caution's still the name of the game in the IPO market

By James Rogers

"I don't think you're going to turn a switch and the floodgates will open," said Christian Munafo, Chief Investment Officer of Liberty Street Advisors

Reddit Inc. enjoyed a strong debut as a public company in its closely watched offering Thursday, but don't expect the IPO floodgates to re-open, according to Christian Munafo, Chief Investment Officer of Liberty Street Advisors.

"The fact that this is well received is encouraging to us," he told MarketWatch, but noted the caution that still exists in the broader IPO market. "I don't think you're going to turn a switch and the floodgates will open ... we think there's going to be a reserved approach."

"We continue to believe that the market is going to start opening up, it's just going to be measured," he added. Munafo is portfolio manager of Liberty Street Advisors' Private Shares Fund, which gives retail investors access to late-stage, venture-backed private companies. The fund is not an investor in Reddit.

Related: How Reddit's big first trading day stacks up

Geopolitical uncertainty, interest-rate hikes and bank failures hindered a hoped-for IPO market rebound in 2023. A spate of underperforming IPO stocks in recent years has also contributed to the current air of caution in the IPO market, according to Munafo.

There is also an "underwriters' dilemma" at the moment, according to Munafo. "Think about the investment bankers that underwrote a lot of the IPOs and SPACs that didn't work out in 2020, 2021," he told MarketWatch. "We think that the underwriters will take a cautious approach too in terms of how they are pricing these IPOs."

"There's a lot of investors that ultimately got burned in the last cycle," Munafo added.

Related: Reddit revives a sleepy IPO market

However the Liberty Street Chief Investment Officer said there are a number of companies in the private market that are potential IPOs, and acknowledged the IPO chatter around videogame-focused chat startup Discord Inc., and security-operations company Arctic Wolf, which are part of the Private Shares Fund portfolio.

Elon Musk's SpaceX is also in the portfolio and Munafo pointed to the IPO spinoff talk that has swirled around Starlink, the SpaceX-owned satellite internet constellation.

Car-share company Turo, which is also part of the Private Shares Fund portfolio, has already filed paperwork for its IPO. Cybersecurity company Rubrik, another portfolio member, has also been touted as a future IPO.

Related: Reddit's IPO could be a bellwether for other offerings this year, says Vanderbilt professor

"We think that the premier pre-IPO companies are going to remain measured in terms of how they approach their public market debuts," Munafo said. "They are going to watch Astera Labs, they are going to watch to watch Reddit," he added.

Reddit's (RDDT)stock is down 2.9% Friday, while shares of Astera Labs Inc. (ALAB), which also went public this week, are up 5.7%.

-James Rogers

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

03-23-24 1004ET

Copyright (c) 2024 Dow Jones & Company, Inc.