Reddit: Don't Buy The Hype
Reddit priced its shares at the top of the range for its IPO and saw a 48% increase in share price on its first day of trading. The social media platform is not profitable and has an unimpressive profitability picture. Reddit has not achieved a profit since 2005 when it was founded. Reddit's valuation is high with a price-to-revenue ratio of 7.6X and the valuation is likely chiefly driven by IPO hype.
Reddit, Inc. shares have had a strong public debut, potentially making it a meme stock itself. The platform has a large and engaged user base, with 76 million daily active users participating in various communities. The company's valuation is reasonable based on its sales multiples, but it still faces risks such as fluctuating user base and reputation damage, while some margin work remains.
The newly public company has been on a wild ride since going public. On Tuesday, the stock had gained nearly 100% since the IPO, despite losing $69.3M and $108.4M on an adjusted EBITDA basis in 2023 and 2022, respectively. Research firm Hedgeye initiated Reddit as a new short idea on Wednesday, with analyst Andrew Freedman stating the hype is "starting to wear off." There is roughly 50% downside to the stock based on its original IPO price of $47, Freedman said.
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