Analysis: Reddit IPO to test the hype of social media platform’s ‘meme’ actions

The Reddit logos are shown in this illustration taken on February 2, 2021. REUTERS / Dado Ruvic / Illustration // File Photo

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Dec. 17 (Reuters) – Reddit users have helped fuel dozens of stock rally “memes” this year, from retailer GameStop Corp (GME.N) to movie theater operator AMC Entertainment Holdings Inc (AMC.N). Some analysts doubt this is the social media platform’s saving grace as it prepares to sell its own shares on the stock market.

The San Francisco-based company confidentially filed with US regulators this week an initial public offering (IPO). It is aiming for a valuation of at least $ 15 billion, Reuters reported in September.

Reddit co-founder and CEO Steve Huffman hopes retail investors play a big role in the stock market debut. “I want our users to be shareholders and I want our shareholders to be users,” he told an audience at the Wall Street Journal’s Tech Live conference in October.

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Many Reddit users indicated in posts on Thursday that they would support the IPO. But several industry analysts have questioned whether the trend in “meme” stocks would carry Reddit stocks in the long run.

Wedbush’s internet securities analyst Ygal Arounian said it was not clear whether the influx of Reddit users, who were drawn to the company’s forums to rally around the purchase of some stock, including GameStop stock in January, would be enough to support the growth of the company. “The question is: was this elevator durable? ” he said.

A Reddit spokesperson declined to respond to industry analysts’ skepticism about its public company’s growth prospects, citing the “period of calm” that accompanies filing documents with the Securities and Exchange Commission.

With a valuation of $ 15 billion, Reddit would be valued at 20 times revenue, or three times the multiple of Meta Platforms (FB.O), owner of Facebook, according to Breakingviews. Read more

And this despite the fact that the 16-year-old company significantly lags Facebook and other major social media companies in terms of users and revenue.

Reddit generated $ 100 million in advertising revenue in the second quarter of this year, according to the company. This reflects a tripling from a year ago, or roughly $ 400 million per year on a run rate basis, serving approximately 52 million users per day.

Facebook, which was founded a year before Reddit, generated $ 85.9 billion in 2020 and serves around 3 billion users worldwide. Twitter, which launched in 2006, brought in $ 3.72 billion in revenue last year and now attracts 211 million users per day.

Reddit’s appeal to advertisers is limited as it remains an accessory in their marketing plans compared to platforms like Facebook which offer a much larger audience, said Matt Navarra, a UK-based social media consultant whose previous clients include Google, the BBC and International Red Cross.

Indeed, Facebook and YouTube lure marketers in with highly targeted text and video ads designed to drive sales. Reddit users also criticized the platform for being too heavily advertised.

Reddit has taken a more passive approach to content moderation compared to its bigger rivals, relying on its loyal communities for control. This approach has resulted in content such as hate speech that advertisers avoid, although the company has made strides in recent years in limiting that content.

“It’s a pretty scary place for a lot of small, medium and big brands who are careful about where they put themselves,” Navarra said.

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Reddit has changed little in its core functionality since it split from magazine conglomerate Conde Nast in 2011. Its recent surge is due to the popularity of WallStreetBets and other forums on its platform that have become a breeding ground for speculation. for individual investors. actions.

Attracting more users will require new features as Reddit rivals hunt for metaverse, virtual reality, audio discussion boards and newsletters, analysts said.

The company has made some effort to refresh its appeal. In December, it acquired Dubsmash, a TikTok-like app. It also launched real-time features like voting animations and keystroke indicators for the first time.

Reddit may also be able to generate more ad revenue from its existing loyal user base, which could be catnip for some advertisers, said Rich Greenfield, analyst at research firm LightShed Partners.

“Whether it’s on video games, whether it’s stocks like WallStreetBets, or whether it’s Marvel or Star Wars, Reddit creates an environment where you can target communities of passionate consumers,” Greenfield said.

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Reporting by Dawn Chmielewski and Sheila Dang; Editing by Greg Roumeliotis and Kenneth Li

Our standards: Thomson Reuters Trust Principles.


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