Reddit’s IPO Raising Skepticism, ‘Meme Stock’ Concerns, Insiders Selling Days after IPO Filing. Price Stabilization Post IPO Hype Possible.
On February 22, Reddit revealed that its net loss had narrowed to $90.8 million in 2023, accompanied by a revenue growth of approximately 21%. This disclosure was paired with the social media giant's decision to make its IPO filing public, signaling its eagerly anticipated entry into the U.S. stock market in March.
Since its inception in 2005, Reddit has yet to turn an annual profit.
The IPO filing, nearly two decades after Reddit's inception, marks a significant milestone for the platform. Despite its longstanding presence, Reddit has yet to achieve the commercial success enjoyed by its peers like Facebook and Twitter/X.
In the final quarter of 2023, Reddit reported an average of 73.1 million daily active users and 267.5 million weekly active users. The platform boasted over 100,000 active communities and had accumulated a staggering 1 billion posts.
Despite these figures, Reddit's stock has faced skepticism from U.S. brokerages, primarily concerning its profitability and the potential for it to become a 'meme stock' - a stock driven more by social media trends than its underlying fundamentals.
Analysts at Bernstein and Baird were among the first to weigh in on Reddit's prospects. Bernstein assigned an 'Underperform' rating with a price target of $40, citing concerns over Reddit’s engagement metrics and the nature of its content. Conversely, Baird issued a 'Neutral' rating with a $50 target, highlighting Reddit’s robust user community and potential for margin growth.
Reddit's prominence surged in 2021 during the 'meme-stock' frenzy, driven by its "Wallstreetbets" forum, which fueled substantial investments in stocks like GameStop.
In March 2024, Reddit made its highly anticipated debut on the public markets, marking the first significant IPO of the year. The company priced its initial public offering at $34 per share.
In an unconventional move, Reddit allocated 8% of its IPO shares to its users, moderators, board members, and employees’ relatives.
Despite anticipated first-quarter operating profits showing significant improvement, Bernstein analysts remain cautious. They characterize Reddit as an "institutional meme stock" and cast doubt on the platform's promises of advertising and profit growth.
The sale of Reddit shares by CEO Huffman and other key officers had also been anticipated to some extent.
CEO Steve Huffman sold 500,000 shares on Monday at an average price of $32.30, netting $16.15 million. CFO Andrew Vollero sold 71,765 Reddit shares for $2.318 million. COO Jennifer Wong divested 514,000 shares for $16.602 million.
Additionally, CTO Christopher Slowe sold 185,000 shares for $5.975 million, while CAO Michelle Reynolds sold 3,033 RDDT shares for $97,966. Board member David Habiger offloaded 3,000 shares for $102,000.
For a couple of days now, the stock price seems to be stabilizing at around the $46 mark post IPO hype and media focus.
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