Reddit Goes Public: Will it become profitable soon?

Disclaimer: I am not a financial advisor and this is not financial advice. Do your own research and make your own decision.

For my LSU Shreveport MBA's Finance class forum discussion this week, our assignment was to analyze a recent IPO and point out some of the items investors should notice and other unique buying/selling signals. I chose Reddit, Inc. I’ve been a Redditor since 2008 and a daily user for news and other useful information and have found the social bookmarking site to be very useful to learn about current trends and news from multiple different sources. I also enjoy the comments. I wanted to analyze Reddit’s IPO and how they’ve done since then with my newly minted financial insight from my MBA program and see how they’re faring as a newly public company. Better yet, I wanted to know if they’re a good investment and if I should buy some RDDT stock.?

Reddit went public on March 20 2024, but the company was founded in 2005. (Lerch, 2024) The company’s message board platform lets users connect around a variety of topics and has 50 million daily users. They have advertisements on the site, which according to Yahoo Finance is 90% of its revenue. In Q2, Reddit took $281Million in revenue and $253Milliion of it was from revenue. The company also has a Reddit Premium offering that removes ads but costs monthly subscription fees. When Reddit went public, the stock immediately went up as high as 70% on that day, where it has stayed. The opening price was $34/share and went up to around $57.80 and now hovers around 65.00/share. (Lerch, 2024)?

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The Motley Fool on Yahoo Finance says Reddit has generated no profit so far but calls it a growth stock. (Lerch, 2024) The company pays no dividends, but RDDT reported that it has $1.7Billion in cash and equivalents on its book at the end of the last quarter and only $28Million in debt. (Lerch, 2024) Yahoo Finance suggests the stock is for growth-oriented investors if they can continue to grow in userbase and start generating more revenue. The site does not list a Beta or PE Ratio, which is because of how new the company is on the New York Stock Exchange.?

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As a tech stock, it carries the usual risk of technology companies which tend to be volatile and subject to disruption. (“Technology Sector & IT Stocks: Overview, How to Invest | Britannica Money,” 2024) Britannica Money says to watch the company’s debt levels and liquidity, but RDDT is doing fine on both of those fronts with plenty of cash in the bank and no debt. The website AlphaSpread.com estimates their cost of equity to be 7.29% with a Beta of 0.87, which is also their WACC since they carry no debt. (Reddit Inc (NYSE:RDDT), 2024) AlphaSpread.com also puts their solvency at 81/100, which it calls green and is very solvent.??

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However, digging into the financials, they are operating at a loss to the tune of $636.9Million according to their last financial statement for Q2. (Reddit - Financials - Quarterly Results, 2024) Going back a few quarters, they started losing significantly more money when they went public, which seems strange to me. They did lose less money in Q2 than they did in Q1, but not by much and not at a rate that would suggest profitability any time soon to me. Year over year, they’re up 53.6% in revenue, so they’re starting to tread water which leads B. Riley to recommend a strong-buy rating for the RDDT stock. (Marketbeat, 2024)?

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This seems to be a stock to keep an eye on. They’ve been successful as a platform for a long time and Google has partnered with them to use their site for AI answers to questions for its Gemini AI platform. The company will continue to succeed, and I think will eventually be profitable. They’ve been around too long and have too many users who enjoy the platform daily to let it fail. I think playing it safe, keeping cash stockpiles, and not borrowing money is smart and indicates a leadership that is making strategic business plans for success. Ther best asset is their user base, and I believe they’ll be profitable soon.?

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What do you think? Do you use Reddit.com and would you buy RDDT stock now that it's gone public??

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Citations:?

Lerch, J. (2024, September 20). Is This Recent IPO Stock a Buy Now? Yahoo.com; Yahoo Finance. https://finance.yahoo.com/news/recent-ipo-stock-buy-now-171100381.html?

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MarketBeat. (2024, September 21). Reddit (NYSE:RDDT) Upgraded at B. Riley. MarketBeat; MarketBeat. https://www.marketbeat.com/instant-alerts/nyse-rddt-upgrade-2024-09-21/?

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Technology Sector & IT Stocks: Overview, How to Invest | Britannica Money. (2024). In Encyclop?dia Britannica. https://www.britannica.com/money/information-technology-stocks?

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Reddit - Financials - Quarterly Results. (2024). Redditinc.com. https://investor.redditinc.com/financials/quarterly-results/default.aspx?

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Reddit Inc (NYSE:RDDT). (2024). AlphaSpread.com. https://www.alphaspread.com/security/nyse/rddt/discount-rate?

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