Become a logicalchat Member

Latest Post

How New Financial Technologies (FinTech) are Changing the Way Canadians Bank and Invest

The Canadian financial landscape is undergoing a significant transformation driven by innovative FinTech (financial technology) companies. These companies are leveraging technology to disrupt traditional...

Your story starts here. Sign up and let's connect in ways that truly matter!

HomeInvesting IdeasReddit Investors Beware: IPOs Pose Risks Amid Market Volatility

Reddit Investors Beware: IPOs Pose Risks Amid Market Volatility

Reddit launched its initial public offering on the New York Stock Exchange.

Company launched its initial public offering on the New York Stock Exchange, with 22 million shares already sold by executives and employees at US$34 each. The market test is expected to be interesting, causing investors to be cautious.

Rainmaker Securities’ Greg Martin believes Reddit should pursue an IPO due to the buoyant market and all-time highs, stating that the time is right for investors to monetize and the market is incredibly buoyant, making it a good time to follow through with the plan.

Martin argues that company’s initial price makes it more attractive than competitors Snap and Pinterest in terms of revenue multiples, but the high price is still considered high. He advises caution as 98% of Reddit’s revenue in Q4 was advertising, indicating a need for cautious investment.

Phil Young, portfolio manager at Cidel Asset Management, believes Reddit is attractive due to its active user base and potential for growth. Young believes Reddit will be an interesting test for the IPO market, which has been in a dry spell for the last few years, after a boom in 2021 due to low-interest rates during the pandemic.

Reddit, despite having lower revenue per user compared to other social media networks, has fewer ads and potential for growth through data monetization. Young believes the company must demonstrate its ability to increase revenue per user to be a successful stock. Reddit’s text-rich data can be valuable for training AI models for various companies, making it an interesting area for growth.

Company has signed a $60 million deal with Google to use Reddit posts to train artificial intelligence models. However, investor Martin is skeptical about the potential profitability of this AI strategy, stating that it may not be able to sustain the high price levels and should be approached cautiously.

Martin believes Reddit’s content could benefit from AI, but concerns arise about revenue potential. He believes that even at $60 million, a potential $1 billion revenue increase is only 6% of the business, making it a tiny component. He also notes that Google could be one of the biggest customers for the platform.

Must read book about investing – check here

Related Post