Article Co., Ltd. Reddit's SEC filings point to “wild predictions” that Reddit's global market opportunity will be $1.4 trillion by 2027.
Part of the number goes back to one person: Sam Altman. The co-founder and CEO of OpenAI, which developed ChatGPT, owns 8.7% of Reddit's stock through various funds and holding companies owned by co-founder and CEO Steve Huffman. This is more than holding 3.3%. It controls more than 1 million Reddit shares with a total purchase price of $60 million and holds more than 9 percent voting power…
Discussing the future of Reddit, financial analyst and journalist Herb Greenberg recently told CNBC, “This is a play on AI.”
But Kiplinger.com's senior investment editor argues that retail investors “may want to hold onto Reddit's IPO before rushing to buy it.”
IPO stocks tend to have strong first-day results, but first-year returns are generally lower, according to a team of analysts at New York-based market research firm Trivariato Research. And since 2020, “the average IPO has lagged the industry average by 30% for the next three years after the initial closing price…”
Other commenters noted that Reddit's allocation of shares to specific Redditors could reduce demand on the first day of trading, which could negatively impact an IPO's popularity.
“Over the past few years, there have been a number of IPOs in the U.S. in which overhyped stocks enjoyed a splashy debut on the stock market, only to plummet soon after,” he said. street.
Notable examples include Coinbase, which plummeted almost 90% after its debut, Robinhood, which is still down 53% since its IPO, and Rivian, which is down over 91% since its debut. However, it is worth noting that these IPOs all took place in 2021 amid market euphoria fueled by low interest rates, significant economic stimulus, and the lingering effects of the COVID-19 pandemic. is important. Although the current macroeconomic climate is different than it was three years ago, valuations for tech and growth stocks remain expensive.
Kiplingers.com says, “Ultimately, it depends on your own personal investment goals and risk tolerance. Please purchase at.''
But they also cited analysis by David Trainer, CEO of New Construct, an artificial intelligence-powered research firm. “Reddit's IPO marks the return of junk IPOs,” Trainor wrote in Forbes. ”[The valuation] This implies that Reddit's user base will grow 26 times its current level, which is almost five times the size of Reddit. [Snapchat-maker] A snap, and a highly unlikely feat. We believe investors should hold off on this IPO as Reddit appears to be overvalued. ”
Trainer wrote:
[T]His company has never made a profit and should not be a public company…I think this company will never be able to monetize the platform without pissing off the users, And Reddit's premise is user-generated content. It's inevitable that this business model is built on a catch-22: make money or please your users…Reddit appears overvalued, so investors may want to I think they should postpone the IPO.
buyers and analysts told the site. marketing brew “They see this platform as nice to have, but not as an integral part of their media plan like Meta or Google.”
Brian Wieser, a former GroupM executive and current author of the industry newsletter Madison and Wall, told Marketing Brew, “They've always been a second-tier or second-tier social network, along with Snap, Pinterest, and X. “We are firmly positioned in the third tier.”
Still, Trainor said, “98% of Reddit's revenue in 2023 will come from third-party advertising on the site, and 28% of total revenue will come from 10 customers,” adding that “Reddit's cost of revenue, It includes sales and marketing, general administration and research costs. Development costs were his 117% of 2023 revenue. ”
Trainor concluded, “Reddit is far from breaking even. Reddit is an unprofitable social media company fighting for its users.”
Bloomberg added that the subreddit r/WallStreetBets has “many people pointing out that the company continues to lose money two decades after its founding, and threatening to bet on the stock.” (Reddit lost $90.8 million last year, down from $158.6 million the year before). ”
Some complain that the invitation to invest doesn't make up for the unpaid labor they invest in making the site work… In 2021, the platform's WallStreetBets forum ignited a meme stock frenzy, Nostalgically, it caused the stocks of struggling companies to soar. GameStop Corp. and AMC Entertainment Holdings Inc.'s acquisition is sending shockwaves through the financial world… If it goes public, there's a risk that the platform that invented the meme stock will itself go public.
Reddit pointed out this possibility as a risk in IPO filing. “Given Reddit's wide visibility and brand recognition, including as a result of the popularity of r/wallstreetbets among retail investors,” the company said its stock “could experience extreme volatility and, as a result, You may lose all or part of it.” If you are unable to sell your shares for more than the initial sale price, you will sell a portion of your investment. ”
WallStreetBets users were outraged by the fact that the company cited the forum as a risk factor, and posted about it with a naughty smiley face emoji…
Meanwhile, we've also seen reports of marketers infiltrating subreddits. More than 200 companies are reportedly integrating Reddit Pro into their digital strategies. search engine land“Including famous names like Taco Bell, the NFL, the Wall Street Journal…”
“During the initial alpha testing phase with approximately 20 companies, Reddit reported that pro partners generated an average of 11 additional posts and comments per month.”