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Does Reddit Represent the Return of the Junk Stock IPO? (forbes.com) 74

Posted by EditorDavid from the Snoo's-you-lose? dept.
An article in Inc notes a "wild projection" in Reddit's SEC filing that Reddit's global market opportunity by 2027 is $1.4 trillion." Some of the numbers lead back to a single individual: Sam Altman. The co-founder and chief executive of ChatGPT-maker OpenAI owns an 8.7 percent stake in Reddit, more than its co-founder and CEO, Steve Huffman, who owns 3.3 percent... Altman, through various funds and holding companies he owns or manages, controls more than a million shares of Reddit at $60 million in aggregate purchase price — and holds more than 9 percent of voting rights...

Discussing Reddit's future, financial analyst and journalist Herb Greenberg recently told CNBC, "This is an AI play."
But the senior investing editor for Kiplinger.com argues that retail investors "may want to hold tight before rushing out to buy the Reddit IPO." While IPO stocks tend to have strong first-day showings, returns for the first year are generally weak, says the team of analysts at Trivariate Research, a market research firm based in New York. And since 2020, "the average IPO has lagged its industry average by 30% over the subsequent three years following its first closing price..."

Other commenters have noted that Reddit's allotment of shares to select Redditors could lower demand on the first day of trading, which would work against any IPO pop.
"Over the past few years, there have been a bunch of IPOs in the U.S. in which overhyped names enjoyed flashy stock-market debuts only to drop sharply soon after," notes the Street. Notable examples include Coinbase, which plummeted by almost 90% after its debut, Robinhood, still down 53% since its IPO, and Rivian, down over 91% since its debut. However, it's crucial to note that all of these IPOs occurred in 2021 amid market euphoria fueled by low interest rates, significant economic stimulus, and the lingering effects of the Covid-19 pandemic. Although the current macroeconomic landscape differs from three years ago, valuations of tech and growth stocks remain stretched.
Kiplingers.com concludes it "boils down to your own personal investing goals and risk tolerance. If you do decide to buy Reddit stock when it first begins trading, do so in a small amount that you can afford to lose."

But they also cite analysis from David Trainer, CEO of New Constructs, a research firm powered by artificial intelligence. "Reddit's IPO marks the return of the junk IPO," Trainer wrote in Forbes. "[The valuation] implies that Reddit will grow its user base to 26 times current levels, which would be nearly five times the size of [Snapchat-maker] Snap, and a highly unlikely feat. Reddit looks overvalued, and we think investors should pass on this IPO."

Trainer writes: [T]he company has never been profitable and should not be a publicly traded company... I think the company may never monetize its platform without angering its users and the entire premise of Reddit is user-generated content. This business model is inescapably built on a catch-22: make money or please users... Reddit looks overvalued, and I think investors should pass on this IPO.
Buyers and analysts told the site Marketing Brew "that they see the platform as nice-to-have, but that it is not an essential part of their media plans, like Meta or Google are." "They've always been solidly in the second or third tier of social networks," alongside Snap, Pinterest, and X, Brian Wieser, a former GroupM exec who's now author of the industry newsletter Madison and Wall, told Marketing Brew.
Yet Trainer notes that "98% of Reddit's revenue in 2023 came from third-party advertising on the site and 28% of all revenue came from ten customers," and "Reddit's cost of revenue, sales & marketing, general & administrative, and research & development costs were 117% of revenue in 2023."

Trainer concludes "Reddit is nowhere near breakeven. Reddit is an unprofitable social media company fighting for users."

Bloomberg adds that the subreddit r/WallStreetBets "has threatened to bet against the stock, with many people noting that the company still loses money two decades into its existence. (Reddit lost $90.8 million last year, down from $158.6 million the year before.)" Some have complained that the invitation to invest fails to make up for the unpaid labor they've invested making the site work... In 2021 the platform's WallStreetBets forum ignited a meme-stock frenzy, propelling skyward the stocks of nostalgic but struggling companies like GameStop Corp. and AMC Entertainment Holdings Inc. and sending shockwaves through the financial industry... When it goes public, the platform that invented meme stocks runs the risk of becoming one itself.

Reddit noted the possibility as a risk in its IPO filing. "Given the broad awareness and brand recognition of Reddit, including as a result of the popularity of r/wallstreetbets among retail investors," the company warned that its stock could "experience extreme volatility ... which could cause you to lose all or part of your investment if you are unable to sell your shares at or above the initial offering price."

Users on WallStreetBets got a kick out of the fact that the company listed the forum as a risk factor, posting about it with a sly smiling emoji...
Meanwhile, reports that marketers are infiltrating subreddits have been confirmed. Over 200 businesses have "integrated Reddit Pro into their digital strategies," reports Search Engine Land, including "well-known names such as Taco Bell, the NFL, and The Wall Street Journal...

"During the initial alpha testing phase with approximately 20 businesses, Reddit reported its Pro partners, on average, generated 11 additional posts and comments per month."
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Does Reddit Represent the Return of the Junk Stock IPO? More

Does Reddit Represent the Return of the Junk Stock IPO?

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  • I assume a junk IPO is the idea (Score:5, Informative)

    by Baron_Yam ( 643147 ) on Sunday March 10, 2024 @04:41PM (#64305091)

    The whole point of this IPO is for the current investors to cash out at the best rate they can get before the business folds. It's never going to survive long term - they never found a way to make it profitable, and all their recent attempts to make it look more promising in the short term are blatant and almost certain to result in a long term worsening of the situation.

    They're just looking to convince some enthusiastic idiots with too much spare cash to volunteer as bag holders.

    • Re: (Score:3, Funny)

      by Anonymous Coward

      C'mon, man. Don't be a cynic.

      It has crypto bro Sam Altman on board now.

      Combine your IPO with an ICO. Make the blockchain self-verified via chatgpt and every post you make will reward you with a Redditoken, the hottest alt-currency of 2025.

    • Re: (Score:2)

      by gweihir ( 88907 )

      Indeed. And then Altman is into Crapto and the AI scam as well. The connection is really obvious.

    • I think you're on target here.

      The old free-discussion Reddit is dead but once the censorship board digs its claws in by October it'll lose most of its usefulness.

      Hopefully that risk is disclosed in its filing.

      But why not cash out before the value collapses? We might well make the same decision in their shoes.

      • Re:I assume a junk IPO is the idea (Score:5, Interesting)

        by Tom ( 822 ) on Monday March 11, 2024 @03:49AM (#64305907) Homepage Journal

        The old free-discussion Reddit is dead but once the censorship board digs its claws in by October it'll lose most of its usefulness.

        It's already getting there. I've noticed an increasing number of comments disappearing. Some that I responded to before they vanished were not in any way illegal, hateful or in some other way worthy of deletion. Some of them I very much disagreed with, but they clearly fell under free speech and simply having an opinion.

        • Re: (Score:2)

          by zitsky ( 303560 )

          I was temporarily banned on Reddit for complaining about hate speech from certain minority groups towards the LGBT community. And I get banned for "promoting hate". Reddit is such a fucking mess.

          • Re: (Score:2)

            by Tom ( 822 )

            Reddit has very strong "don't rock the boat, we're about to IPO" vibes right now.

    • Re: (Score:1)

      by Anonymous Coward
      A year after Reddit was started, the founders sold it to Conde Nast, a large publisher who owns various magazines and websites. Right from the very beginning they were never interested in running a business, they were only interested in cashing out as quickly as possible.

    • r/hardpass

  • Looking better (Score:1)

    by Anonymous Coward

    I have been against the whole deal mostly because Reddit sucks but now I'm starting to change my mind. Any time "market experts" start weighing in you can bet the best move is the opposite of what they say.

  • Simple Answer To The Headline (Score:4, Insightful)

    by NoWayNoShapeNoForm ( 7060585 ) on Sunday March 10, 2024 @05:02PM (#64305115)
    Yes

  • Return? (Score:4, Insightful)

    by taustin ( 171655 ) on Sunday March 10, 2024 @05:12PM (#64305139) Homepage Journal

    Junk stocks went away? When?

    • Junk stocks went away? When?

      In 2000, the Nasdaq had 4,657 listed companies.

      Today it has 3,611.

      • Re: (Score:1)

        by taustin ( 171655 )

        And? What evidence is there that the thousand missing stocks were all, or even mostly, junk IPOs, or that they were the only junk IPOs in 2000.

    • exactly, Junk stock IPO's never left, they have been ongoing as long as there have been IPO's.

  • I don't see the Reddit IPO as having no value, in fact I think it may be one of the most valuable social media platforms:

    1) Still heavily used, and do to highly segmented design it doesn't matter if a few subreddits entire drop Reddit, as there are hundreds more to take the place.

    2) I think they have a pretty well blanked approach to ads, they never seem to overwhelm my feed.

    3) They also have a reasonable structure now for third party access, I use the Narwhal iOS app which works really well, and does not h

    • le who run/ran many of the most populated subreddits though. 98% ad revenue. I use reddit, also extensive ad blocking and have never seen an ad. They tried and failed to do the NFT thing. I didn't read their filing, but I wonder how close operating costs are to revenue.

      On top of that they got rid of the paid awards to put on posts you agree with which is just fucking stupid as they then replaced it with nothing.

      How many times has Slashdot changed hands? Reddit has many many MANY times more users. I us

      • I'm not sure comparing slashdot to reddit is reasonable. I've been on this ridiculous website since close to the beginning (a few years in, but basically the 1990s) and I consider Slashdot part of the first generation of "social media" sites along with the SomethingAwful forums (slashdot has pretty similar numbers to SA, mostly an older audience who never really moved on) and a few legacy sites like that. While they all still have an audience, they arent even in the league of Reddit in terms of numbers and

        • Its definately NOT a trillion dollar social media company

          You have no idea how valuable that base of training data will be in the future, every social media site is locking down the free scraping AI has enjoyed to this point.

          You are spot on about the size of Reddit compared to Slashdot... as you say the people here are almost all older people who have not moved on, for whatever reason... kind of like a 150 year old pub way on the outskirts of the English countryside, heck maybe on the border with Wales, with

          • Using Reddit as a training base for your AI? That's funny. If you start with hallucinatory input, I can guarantee the output will be delusions.

          • Hello, fellow 5-digit Slashdotter. I, too, have also not moved on.

            I do participate in Reddit a lot, but I think it's an absolute garbage company. However, there are some really good communities to be found if you dig a bit.

            I can't imagine how it could possibly be a good investment.

    • What else are you going to train your AI with, Quara?

      I thought not.

      • Give it time - say 6-12 months after IPO - and becoming quora will be their best outcome.

        The AI play is not a good reason to go public, its a great reason to remain private, prioritize user engagement, and pitch buyers for an acquisition.

        Going public means the board has to deal with shareholders, revenue expectations, public pressure over the content... and more scrutiny over its operations and strategy (and acquisition offers).

        There are very few moves reddit can make to improve ad business profitability, o

  • Reddit has consistently been hemorrhaging users for the last year, because of reallllly dumb decisions that piss off their core user base. Anyone at all actually investing in the company is courting total loss. It's on course to crash and burn the same way Twitter is, within even needing Elon to help it along.
    • Reddit killing the core user base goes much further back than the last year. I'd mark the start more around the r/atheism purge.

    • Re: (Score:1)

      by nomadic ( 141991 )

      The big problem is their core user base is made up of just terrible people who drive their non-core base away.

    • Re: (Score:3)

      by DMDx86 ( 17373 )

      I’m done with reddit besides a couple of communities that I still value. The way they mistreated the developer of Apollo and refused to negotiate with him in good faith, and then lied about what was said. The other clients are garbage, including the official one.

      If I visit reddit with a browser, it is with adblock on.

      • Re: (Score:1)

        by Anonymous Coward

        Im done with reddit besides a couple of communities that I still value.

        so you aren't done with reddit, then?

    • It's on course to crash and burn the same way Twitter is, within even needing Elon to help it along.

      Considering that Twitter is trading above it's 9-year average right now, ($53.70 today, vs. $35.87 average,) I'm not sure I'd consider them "crashing and burning," although they're certainly down off their high, ($77.06 in February 2021, admittedly a year before Elon bought the company.)

      That being said, I think Reddit's IPO price is likely way too high. I was expecting something far lower than what I've seen. Considering that the preliminary prospectus [sec.gov] makes a big deal out of what Redditors might do as a ri

  • The company big wigs will make it an advertiser paradise by adding numerous ads and pop up ads. If you have an ad blocker it will block you. Using AI it will replace comments by humans with a response by AI bots.

    • If you have an ad blocker it will block you.

      That's still not even really working with Youtube. If Google can't pull it off, what makes you think Reddit can?

  • eh (Score:4, Funny)

    by nomadic ( 141991 ) <nomadicworld@@@gmail...com> on Sunday March 10, 2024 @05:48PM (#64305195) Homepage

    I have no doubt reddit shares are going to soar in price after the IPO simply because I don't plan on buying anything and that's how it seems to work.

    • I remember in grad school sitting around with my research group and we all thought the google IPO was just too high. How could a search company be worth $23 billion dollars?

      Now its market cap is $1.69 trillion dollars.

      Then when google bought youtube for $1.65 billion. I mean, come on, how could a video website that anybody could program be worth over a billion dollars!!?

      In 2023 it generated $31.5 billion in revenue.

      • Indeed a lot of people fail to comprehend big numbers used in the corporate world. It's just like all the stories about how insane Zuckerberg was for investing $10bn/yr into VR R&D. An inconceivably high number, but yet at less than 10% of their yearly revenue and perfectly inline with what other tech companies re-invest in R&D.

        Sure it may not be a good investment, but most people were freaking out at the number alone without realising how small it is in the grand scheme of things.

  • ...most of Reddit is junk...so, yeah
  • "You will never find a more wretched hive of scum and villainy. We must be cautious."

  • Summary too long, didn't read. (Score:4, Insightful)

    by Seclusion ( 411646 ) on Sunday March 10, 2024 @06:53PM (#64305321)

    Seriously editors and submitter, a story summary should be pithy.

  • because of the value of the comments they own for training AI chatbots. That's where all the value is.

    As always, you are the product.

    • There's some value there but not enough to maintain a high and increasing stock value over time.

      This puppy is gunna drown in losses and controversy.

    • Re:No (Score:4, Interesting)

      by yanyan ( 302849 ) on Monday March 11, 2024 @02:17AM (#64305839)

      I'm not a regular user of reddit. I do have an account on the site but i don't browse it; i end up visiting reddit because of google searches. From what i've seen i think the quality of the posts and comments on reddit is poor. The signal-to-noise ratio is pretty low and it's a toxic waste dump. What kind of value is there for machine learning and AI training?

      • Depends, if you need to create a new Russian troll for /....

      • Some of the less populated subreddits aren't so bad. Anything on the front page is garbage, though.

      • Re: (Score:2)

        by erice ( 13380 )

        I'm not a regular user of reddit. I do have an account on the site but i don't browse it; i end up visiting reddit because of google searches. From what i've seen i think the quality of the posts and comments on reddit is poor. The signal-to-noise ratio is pretty low and it's a toxic waste dump. What kind of value is there for machine learning and AI training?

        The value is that many of many of the topics on Reddit are not discussed anywhere else. It isn't that the data is good. It is the only data available.

  • Predictable pattern of enshittification will be used to extract value from Reddit. More ads, selling user data, including posts for training AI, pay-to-promote and so on. It will get worse.

  • I think the analysts advising against buying stock have it just about right. But I disagree with David Trainer's contention that "Reddit is an unprofitable social media company fighting for users." I would say that Reddit is fighting against users.

    Trainer also said "I think investors should pass on this IPO". That's not how the slang word for "urinate" is spelled...

  • ...should pass on this IPO.

    which is to say, "ð'...ð''ð'ð'ð'¾ð" ð"ð'oeð'oeð"ð" ð'oeð"ð''ð"ð"ð'ð"ð"Sð''ð', ð'ð"fð' ð¼ ð"ð'½ð'¾ð"fð" ð'¾ð"fð"ð''ð"ð"ð'oeð"ð" ð"ð'½ð'oeð"Sð"ð' ð"...ð'ð"ð" ð'oeð"f ð"ð'½ð'¾

  • If you've got some money you can afford to lose and you're willing to take very high risk investment decision then sure go for it up to your acceptable full loss pain limit.

    Everyone else should stay far away.

    I predict it'll go up at first but choke hard by the time they have to do their first public quarterly report and go down from there into zombie state.

  • Irony (Score:4, Insightful)

    by reanjr ( 588767 ) on Monday March 11, 2024 @01:53AM (#64305827) Homepage

    Irony is if Reddit tries to interfere with Wall Street Bets, it will be stock manipulation.

    • Re: (Score:2)

      by Tom ( 822 )

      I wouldn't at all surprised if they are hoping for the reverse - that WSB pushes the Reddit stock.

      I don't think that'll happen. Most of the people on WSB seem to be smarter than that.

  • readying for a junk IPO (Score:3)

    by Tom ( 822 ) on Monday March 11, 2024 @03:45AM (#64305903) Homepage Journal

    I've noticed that Reddit seems to be quite busy making itself pretty for an IPO. There is a LOT of upvoted, good comments that disappear all over the political subreddits especially. Controversial debate is apparently bad for an IPO, so it's getting shut down. Especially in the Israel-Gaza and Ukraine-Russia debates, moderators are working overtime, some postings have more deleted than remaining comments. It's really weird.

  • I'm watching this, don't spoil it!

    Pass the popcorn, take a soda...

  • If you treat the stock market like a casino, don't act surprised when it acts like a casino.

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