Reddit: Don't Buy The Hype
IPO pricing and initial market reaction
$Reddit(RDDT.US$ is a social media platform that hosts online communities and is very popular with younger users. In December 2023, 76 million users visited Reddit each day, on average. Reddit is most commonly known for a question-answer style communication flow and the company has more than 100k unique communities that users engage in. The social media company mostly makes its money from digital advertising that is placed on Reddit's online communities.
Reddit’s IPO has been in the making for a number of years and the firm achieved a massive $10B valuation in 2021. Due to strong investor demand for the company’s shares ahead of the initial public offering, the social media company priced its shares at the top of the range at $34. After Friday's price drop, Reddit now has a market cap of approximately $7.3B which is quite expensive when the company's fundamentals are considered.
Reddit’s IPO has been in the making for a number of years and the firm achieved a massive $10B valuation in 2021. Due to strong investor demand for the company’s shares ahead of the initial public offering, the social media company priced its shares at the top of the range at $34. After Friday's price drop, Reddit now has a market cap of approximately $7.3B which is quite expensive when the company's fundamentals are considered.
Taking a look at Reddit’s fundamentals
Reddit’s financial disclosures ahead of the Initial Public Offering showed that the social network generated $804.0M in revenues in the 2023 fiscal year, showing a year over year growth rate of 21%. The social media company is, however, not profitable based off of either net income or free cash flow and has not turned a profit since it was founded in 2005. Of the $804M in revenues, $788.8M were advertising revenues, also showing 21% year over year growth.
As I said, Reddit is not yet profitable, not even on an adjusted EBITDA basis. The social media company generated an adjusted EBITDA loss of $69.3M in FY 2023 which marked a narrowing of losses compared to the previous year. However, investors are unlikely to see positive adjusted EBITDA, or net income, or free cash flow, in FY 2024.
Risks with Reddit
The biggest risk for Reddit relates to the company’s high valuation based off of revenues and its rather unattractive profitability profile. The social media platform is burning through cash -- it had negative free cash flow of $85M in FY 2023 -- and the trajectory is unlikely to fundamentally change in the short term. A down-turn in the digital advertising market, given the lack of revenue diversification, would likely heavily weigh on Reddit's valuation factor as well!
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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news porter, welcome and respect all view~
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probablyhigh : Wow that must have taken a lot of time to write. Too bad the only thing that matters is that this stock is going to $90 so the CEO can vest all his options and then dump them on the way down.