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Reddit Launches IPO: Can the Struggling Company Win Over Investors?

Alejandro Zambrano Alejandro Zambrano 21/03/2024
Reddit Launches IPO: Can the Struggling Company Win Over Investors? Reddit Launches IPO: Can the Struggling Company Win Over Investors?
Reddit Launches IPO: Can the Struggling Company Win Over Investors? Alejandro Zambrano

The community forum company is finally turning public. After being a private company for 20 years, Reddit will trade under the ticker “RDDT” on the New York Stock Exchange from today.
 

According to media reports, the IPO is oversubscribed by 4-5 times, and the company has priced its shares at $34 apiece, valuing the company at $6.4 billion. This valuation is far below the $10 billion appraisal per their latest private fundraising in 2021.
 

The company website reports selling the shares at $34 each will raise $519 million in fresh money for the firm. This is something the company needs, given that it lost $91 million last year and $159 million the year before. In fact, Reddit has lost money every year since it was founded in 2005.
 

In total, it is estimated that the company will have 1.5 billion in cash and equivalents and no debt.
 

What is the outlook for the company?
 

Even though the company will be sitting on a significant amount of money after the IPO, there is very little information on what the firm will do with the fresh money beyond using it for general business needs, including operational funds, day-to-day expenses, and investment in assets.
 

So, the question is, if they have not been able to turn a profit since 2005, how can we expect them to provide value to their shareholders?
 

OpenAI and Google
 

As the firm is unable to turn a profit selling ads or monetising its 73 million daily unique visitors until now, there is speculation that the large amount of data and human interaction on the site could be sold as training data for firms like Google and OpenAI. We note that Sam Altman, CEO of OpenAI, will have 9.1% voting power after the Reddit IPO.
 

However, it is debatable how much the database is worth; in a recent TechCrunch article, OpenAI offered between 4 to 20 million a year to news publishers to train its models.
 

As for Google, they entered into a partnership this year where Reddit users can use Google’s Vertex AI for a better search experience. Google also pointed out that many of its search results point to Reddit, as they think the quality of the site's content is high. The implementation of the new partnership will help Google further display relevant content from Reddit to its users, making Google search a more competitive search engine.
 

How about the stock price?
 

Major IPO stocks that recently went public, including Instacart, Klaviyo, and Birkenstock, have primarily recorded uneven and lacklustre demand from investors, suggesting that getting in at the IPO price no longer equals free money.
 

Also, given the sketchy outlook for the firm, there is a high risk that the first few days of trading will be volatile, with some pundits suggesting the share price value should be closer to $10 per share to be worth buying.
 

What is your take on Reddit? Will you be buying the stock or short it as it goes live on the New York Stock Exchange?
 

Stay tuned as RDDT will be available on our proprietary trading platform, ThinkTrader as soon as possible. Prepare your funds to trade RDDT by logging in to ThinkTrader now.
 

Don’t have a ThinkTrader account? Head to ThinkPortal and open one now to access 3,500+ instruments, exclusive features, and more! 

Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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