David Trainer, CEO of New Constructs, argues that Reddit's IPO is overvalued and investors should pass on it, citing that the company has never been profitable and may struggle to monetize its platform without upsetting users. Reddit's cost of revenue, sales & marketing, general & administrative, and research & development costs were 117% of revenue in 2023. Furthermore, the subreddit r/WallStreetBets has threatened to bet against the stock, noting that Reddit still loses money two decades into its existence. Reddit's IPO filing also warns of potential extreme volatility in its stock price.
Key takeaways:
- Reddit's SEC filing projects a global market opportunity of $1.4 trillion by 2027, with Sam Altman, co-founder and CEO of OpenAI, owning an 8.7 percent stake in Reddit and controlling more than 9 percent of voting rights.
- Despite the potential, some financial analysts advise caution, citing the weak returns of IPO stocks in their first year and the possibility that Reddit's allotment of shares to select Redditors could lower demand on the first day of trading.
- David Trainer, CEO of New Constructs, has criticized Reddit's IPO, stating that the company has never been profitable and that its business model is built on a catch-22 of making money or pleasing users. He suggests that investors should pass on this IPO.
- Despite these criticisms, over 200 businesses have integrated Reddit Pro into their digital strategies, indicating some level of confidence in the platform's potential for growth and profitability.