Reddit user u/k_ristovski dissected the social media giant’s initial public offering (IPO) prospectus.
Here are some crucial insights for investors pondering Reddit’s IPO.
Evaluating Global Growth And Market Penetration
Reddit thrives on advertising, generating 98% of its $804 million revenue in 2023. However, while the advertising model seems sturdy, concerns arise when analyzing Daily Active Uniques (DAUq) and Weekly Active Uniques (WAUq) to gauge Reddit’s growth potential within and outside the U.S.
Data: A Key Asset and Future Revenue Driver
Foreseeing the future, Reddit’s data emerges as a valuable asset, spotlighted by a $60 million collaboration with Google, under Alphabet Inc. (NASDAQ: GOOG, NASDAQ: GOOGL). This strategic move toward data licensing could birth a significant revenue stream and buzz around the impending IPO.
Navigating Reddit’s Profit Quandary
Despite nearly two decades in the market, Reddit is yet to report profits, with annual losses hovering around $100 million. Coupled with substantial R&D costs, sluggish revenue growth, and a projected valuation north of $5 billion, investors must scrutinize the sustainability of Reddit’s current business model.
Related: Is Reddit’s Business Model A ‘Ticking Time Bomb’?
Reddit’s Intent, Approach, & Valuation
The IPO sparks curiosity about Reddit’s motives. With ample funds to offset losses, the main drivers appear to be liquidity for existing shareholders and executive compensation, notably for CEO Sam Altman. Altman, linked with OpenAI, wields substantial voting authority in Reddit. The absence of clarity surrounding any licensing pact between OpenAI and Reddit raises concerns.
Furthermore, the IPO strategy seems tailored to drum up interest, with a tailored share initiative for eligible Reddit users and moderators. This psychological tactic could create an air of exclusivity, potentially inflating demand.
In terms of valuation, Reddit’s assessment based on advertising revenues and available cash places the worth at approximately $3 billion.
The burning question lingers: Can the projected data licensing revenue stream justify the lofty $5 billion+ valuation?
Read Next: Reddit Sets Stage For Major 2024 IPO, Targets March Launch On NYSE
