Reddit’s IPO went well, with demand for the stock growing rapidly. But if the company presents loss-making balance sheets, what fuels the market’s interest?
Everyone’s talking about Reddit’s IPO (RDDT), with the company seeing a significant appreciation in its share price at launch, despite the valuation of $34, which was the defined high end of the company’s range.
Currently, the company is valued at approximately $8 billion, which highlights strong growth expectations. The question everyone is asking right now is: are these growth expectations sensible? The answer to this question is not obvious and requires an accurate evaluation of the company’s business.
Is Reddit just speculation?
Anyone who has been online for a few years has probably already heard of Reddit, as it has been an active social network for almost 20 years. Society has a particular fundamental structure and deserves to be explored in depth. The platform is less populated than more common social networks such as Facebook, but the surge in visitors in recent years has once again made Reddit a portal worthy of further study.
Daily active users are constantly rising and compared to the last quarter of 2022, the closing quarter of 2023, there is an increase in users of 30%, although approximately 50% of users come from the United States. Since the company’s core business is linked to advertising, Reddit’s revenues increased significantly in 2023, with growth of approximately 20%. Despite this, the company still fails to generate profit, and this is one of the most difficult factors for the investing public to digest.
Exploring further between the lines of the balance sheet, there is a cost item that has a particular impact on company expenses, but which raises the spirits of investors and gives hope for the future: research and development.
Why did Reddit’s IPO go so well?
Given the financial situation of Reddit, the only reason that can explain such a strong interest on the part of investors is to be found in the growth prospects, as well as a small dose of speculation, which systematically characterizes the stocks on the day of the IPO, especially on particularly discussed companies like Reddit.
What pushes expectations high? The value of Reddit shares is not just based on research and development data, but also the potential impact of artificial intelligence on the company’s network. Reddit has been active online for over 20 years and has accumulated a significant amount of data. Artificial intelligence could leverage this data to create new opportunities and drive growth for the company.
Not surprisingly, the company, with over one billion posts and over 16 billion comments through December 31, 2023, and an average of 1.2 million posts per day and 7.5 million comments per day in 2023, would represent a ’very important source of data. This factor was precisely highlighted by the latest prospectus filed by Reddit itself, citing: "Our content is particularly important for artificial intelligence (’AI’): it is a fundamental part of many major large language models (’LLM’) who have been trained."
Original article published on Money.it Italy 2024-03-26 12:03:00. Original title: Conviene comprare azioni Reddit? Uno sguardo ai dati
