Reddit user u/k_ristovski provided a comprehensive analysis of the impending initial public offering (IPO) of the popular social media platform.
Delving into potential opportunities and risks, here are essential factors for investors to consider regarding the Reddit IPO.
Market Reach and International Expansion
Advertising accounts for a significant 98% of Reddit’s $804 million revenue in 2023. While the advertising model seems robust, scrutiny reveals concerns around penetration rates based on Daily Active Uniques (DAUq) and Weekly Active Uniques (WAUq), necessitating a thorough evaluation of the platform’s growth potential globally and within the U.S.
Data Utilization as a Valuable Asset and Future Revenue Source
Future prospects indicate Reddit’s data as a crucial asset, exemplified by a $60 million collaboration with tech giant Google, part of Alphabet Inc. This pivot towards data licensing could pave the way for a significant revenue stream, adding excitement to the impending IPO.
Reddit’s Financial Conundrum
Despite nearly two decades in operation, Reddit has yet to achieve profitability, registering annual losses hovering around $100 million. With substantial Research and Development (R&D) expenses, modest revenue growth, and a valuation expectation surpassing $5 billion, potential investors must meticulously assess Reddit’s current business model sustainability.
Related: Does Reddit’s Business Model Harbor Hidden Risks?
Reddit’s Intentions, Tactics & Worth
The IPO initiates queries into Reddit’s motives. With ample cash reserves to absorb losses, primary drivers seem to revolve around providing liquidity for existing stakeholders and rewarding executives, notably CEO Sam Altman. Altman, affiliated with OpenAI, commands significant voting power within Reddit. Ambiguities surrounding any licensing agreements between OpenAI and Reddit raise concerns.
Moreover, the IPO strategy aims at peak demand by implementing a directed share program for qualified Reddit users and moderators. This maneuver fosters an air of exclusivity, potentially inflating demand.
In terms of valuation, Reddit’s worth, combining the advertising model and available cash, presents a valuation of approximately $3 billion. The pivotal question remains: Can the projected revenue from data licensing justify a valuation exceeding $5 billion?
Read Next: Reddit Prepares for a Significant 2024 IPO, Eyeing March Debut on NYSE