Reddit Has Some Juice
Readers who missed out on stocks like social media platforms like Facebook (META) now have a chance to grab a pillar of social media in American society.
Reddit (RDDT) went public yesterday and jumped 48% by the end of the trading day cementing its place as a top player of social media stocks in Silicon Valley.
The valuation now is $8 billion and we are just getting started as tech IPOs reverse from its recent dormant activity.
The strong showing by Reddit, along with AI-focused semiconductor connectivity company Astera Labs whose shares have gained 78% since its IPO Tuesday, provides a promising backdrop for other IPO candidates such as Microsoft-backed data security startup Rubrik and health-care payments company Waystar Technologies.
Reddit’s most loyal users were able to buy 8% of the shares at the IPO price, an opportunity typically reserved for institutional investors, and saw a total return in the aggregate of about $29 million by day’s end.
Reddit’s more than two-year slog to listing reflects the ups and downs of the market, beginning with its initial confidential filing in 2021 when IPOs on US exchanges set an all-time record of $339 billion.
Reddit’s listing pushes the total raised by IPOs via US exchanges this year to about $8.8 billion. That’s an increase of around 152% at this point in 2023.
One benefit of Reddit’s slow route to the public market is that enthusiasm for the AI revolution has continued to mount.
The potential of AI was at the center of Reddit’s proposed value proposition to investors, as companies eye the record-setting rallies in stocks like chipmaker Nvidia Corp.
Pay for growth, and for Reddit, which accelerated growth in the past six months, it just makes a strong case that it should be at a premium multiple.
Reddit said it’s in the early stages of allowing third parties to license access to data on the platform, including to coach up artificial intelligence models.
The company said that in January it entered into data licensing arrangements with an aggregate contract value of $203 million and terms ranging from two to three years. It expects a minimum of $66.4 million of revenue from those agreements this year, according to the filings.
Reddit also has announced a deal with Google, allowing Google’s AI products to use Reddit data to improve their technology. Large language models often need vast troves of human-generated content to improve.
Founded in 2005, Reddit averaged 73.1 million daily active unique visitors in the fourth quarter, according to its filings. The company reported a net loss of $91 million on revenue of $804 million in 2023, compared with a net loss of about $159 million on revenue of $667 million a year earlier.
It’s clear to me that there is a solid road map to monetizing Reddit’s platform whether it is licensing in-house data for AI large language models.
Reddit is an extremely rich and diverse social platform in which contributors discuss many topics.
As long as the over 73 million subscribers maintain their engagement, it’s easy to see how the tech company maintains its growth trajectory.
I do believe that subscriber growth will continue and the low-hanging fruit is that 100 million subscriber numbers.
Over time, this platform is a gold mine for AI algorithms to integrate with and that shouldn’t be diminished.
I would invest long-term only on big dips.
