Social media giant Reddit, Inc. RDDT is poised for its much-anticipated Wall Street debut on Thursday, with an initial public offering price of $34 per share. Ahead of the debut, tech investor Gene Munster shared his reservations about the IPO pricing and the short-term outlook for potential investors.
Analyst Commentary: “Grab the popcorn, throw out the fundamentals, and savor $RDDT’s first day of trading,” remarked Munster in a statement. The tech expert and Deepwater Asset Management Managing Partner criticized the pricing of the offering, suggesting that if it were based on fundamentals, the stock would have been priced at the lower end of the $31-$34 range.
Munster highlighted that the stock would open trading at six times the revenue estimate for 2024, a premium compared to Snap and Pinterest’s multiples of 3.5 and 5.3 times, respectively. He pointed out the discrepancy in daily average users, with Snap boasting 400 million compared to Reddit’s more modest 72 million. Both platforms exhibit mid-teens to low twenties growth rates in daily average users.
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Additionally, Munster emphasized Reddit’s minimal artificial intelligence (AI) presence, generating $20 million annually by selling training data to Google. He noted that this revenue stream accounted for less than 5% of the company’s total revenue.
“The future of $RDDT hinges on its path to profitability, advertising revenue growth, and its ability to meet the expectations of its meme stock status,” Munster opined, foreseeing a tug-of-war between long and short positions in the coming weeks.
Key Takeaway: While Munster expresses skepticism, not all analysts share his sentiments. Wedbush’s tech enthusiast Daniel Ives hailed the Reddit IPO as a potential “watershed moment,” projecting the platform’s revenue to reach billions in the next year.
The timing of the IPO seems opportune, with the Federal Reserve signaling potential rate cuts. As the Fed’s influence wanes and an optimistic reporting season looms, market sentiment could remain positive in the short to medium term, potentially lifting Reddit’s shares amidst the upbeat climate.
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