Reddit’s Rising

Reddit, an app founded in 2005, is an American social news, aggregation, content rating and forum social network. Users submit content to the site such as links, text posts, images, and videos, with which other members interact. As of October 2023, Reddit is the 18th most visited 

website in the world.

In March, Reddit raised around $748 million for its initial public offering (IPO), with the company receiving around $519 million to use to fund operating expenses, as well as having money in the event they are looking to acquire or invest in new technologies, intellectual property, or other assets. 

In 2021, Reddit was valued around $10 billion, but at the time of the IPO it was valued at around $6.4 billion. Reddit’s annual sales for 2023 rose 20% to $804 million from $666.7 million in the prior year. The company had reported a net loss of $90.8 million in 2023, narrower than its loss of $158.6 million in 2022, and has never recorded a net profit in its 19 years of existence. 

The shares opened up trading for $47 per share on the New York Stock Exchange, after pricing at $34 in the initial public offering, and was trading for a price of $65.11 per share at the time the market closed on Tuesday, March 26, marking an increase in the price of the stock somewhere around the 40% mark. It appears as if investors are highly optimistic on this stock, expecting prices to go up, and that they are willing to overlook the fact that Reddit is yet to turn a profit since its founding. Investors are betting on the company to succeed, and turn a profit in the near future.

With that being said, should you buy Reddit stock? There are a number of things to take into account before pulling the trigger on the purchase, or completely shying away from it. The first thing to take note of, is the fact that Reddit has never been profitable. While that seems like something that may be problematic, it isn’t as concerning as it may seem. The losses reported by the company are shrinking, moving closer towards making a profit, which may make it a good stock to hold for the long term. 

The next thing to consider is the demand for the stock. It has been reported by unnamed sources close to the situation that demand is four to five times higher than the supply, which can cause the price to increase. With that being said, experts recommend waiting for the company to report its quarter one results before buying, as well as stating that they believe that the fair value of the stock is below their initial public offering price. 

The third consideration is Reddit’s dependence on its users. In 2015, members of Reddit “went dark,” shutting down major forums in protest of the firing of Reddit’s director of talent. In 2023 there were more protests, not as large as in 2015, but still notable. 

So, is it a good stock to buy? That comes down to how adverse you are to risk. If you’re looking for a safe stock, this is not it. They have not yet made profit, are seemingly overpriced, and are susceptible to shutdowns from user dissatisfaction. If you're looking for a risky stock where you may lose big, but can also make it big, this is one to watch.

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Photo Caption: Reddit is a social news, aggregation, content rating and forum social network.

Photo Credit: Brett Jordan / Unsplash