Rabbit Rank is pleased to announce that Reddit has joined the ranks of publicly owned companies. Following in the footsteps of other social media giants like Meta Platforms (Facebook) and Alphabet (Google), Reddit's decision to go public marks a significant milestone in its journey of growth and success.
Effective March 21, 2024, Reddit went public under the NASDAQ symbol RDDT. At the end of the stock-trading day on July 8, 2024, the stock stood at 72.81. Not bad considering the stock closed opening day in the $46 range, meaning the stock has managed to hold sway through explosive trading over the last 3 months.
At this point, potential investors are questioning whether putting some RDDT stock in their portfolios is a good idea. Let's investigate.
About Reddit
Reddit is not new to the social media space. The company was founded in 2005 by Steve Huffman, Alexis Ohanian, and Aaron Swartz. Sensing they had a gem on their hands, they sold the company to Conde Nast in 2006.
As for the company's operations, they serve as a quirky social interaction platform that runs over 100,000 social communities among 73+ million visitors every day. These communities, know as subreddits, cover a wide range of topics.
They also serve as discussion forums for various brands in both official and unofficial capacities. Everything from behemoth companies like Walmart to small casino affiliates such as nodepositbonus.cc are fair game.
In regards to Reddit’s annual revenue stream, most of it is generated by onsite click advertising and the licensing of collected data. Such data is seen as extremely useful given the platforms’ diverse topics and user growth.
Is Reddit Stock a Good Investment?
It's still early in the game, but that's always a good time to assess a company's stock as a viable investment. However, caution is warranted because the first 6 months of trading for any company will likely be volatile.
The goal here is to help potential investors determine whether or not they should invest their hard-earned money in the company's stock. To do that, it seems prudent to offer three (3) reasons to buy the stock and three (3) reasons to stay clear.
Reasons to buy
Let's start with the affirmative. Here are the three (3) key reasons to buy RDDT stock.
1. User Growth Pattern - Social media companies that rely on click advertising revenue are always at the mercy of the platform's traffic. That's a positive for Reddit. Over the company's 19 years of activity, they have maintained a relatively steady user growth pattern. That's confirmed by a 40% growth in users between 2021 and 2023. Note: That's despite a few controversies along the way, which shows the company's resiliency.
2. Revenue Headed in the Right Direction - Novice investors tend to place too much investment emphasis on profitability. That's appropriate with well-established major corporations but not always appropriate with companies still in the maturing phase. What astute investors like to watch in a company's early years is revenue growth. Reddit checks a big box here as revenue grew 20% in 2023.
3. Staying Nimble By Diversifying - Diversification is the best way for maturing companies to lower their risk while creating additional revenue. In recent years, Reddit has shown a willingness to do exactly that. While the company once relied on click advertising as its primary source of revenue, they have recently been diversifying into data licensing and involvement with AI projects (see recent partnership with OpenAI).
Reasons to avoid
In all fairness, it's necessary to point out that a meaningful investment in Reddit right now would involve some financial risk. With that in mind, here are three (3) reasons to avoid buying RDDT stock.
1. Lack of Voting Rights - Astute investors like to invest in companies that will give them some say in how the company is going to be run. That's not the case with Reddit. Most of the IPO shares sold were Class A stock, which comes with one vote per share. Officers and key players were granted Class B stock, which comes with 10 votes per share. It is easy to see that outsiders will get little say in the company's future.
2. Those Pesky Controversies - For a young company, Reddit has certainly been involved in more than its fair share of controversy. The aforementioned GameStop debacle is just one issue in which the company has been caught up. The voluntary blacking out of the platform's communities in mid-2023 also piqued the interest of potential investors. The blackouts were driven by user protests.
3. Moderation Concerns - Management at Reddit seems intent on maintaining an open environment for social interaction. There is little evidence of censorship, which puts the company in a precarious position. While users might prefer the open environment, some corporate investors are leery of getting involved with platforms that might allow "misinformation" or "hate speech." This creates a tricky tightrope for management to walk.
Bottom Line
Right now might not be a good time to invest in RDDT. Why? The stock price sits at more than 100% of its offering price, a price that is not currently supported by revenue or the company's Price-Earnings ratio. A wait-and-see approach would be prudent while the company continues to mature.
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