Opinion
IPO The Reddit share is not for serious investors
The social media platform Reddit plans to go public on Thursday
© SOPA Images / IMAGO
No matter how poorly Reddit develops, the community will always have its back. But where data and prices systematically differ from one another, investors should be cautious
Most of the time, Reddit is a harmless parallel world. A digital rabbit hole for special interests. Anyone who wants to know something about fishing will find help here – just like someone who is looking for stock tips. In principle, Reddit is the last constructive forum on the Internet that even conveys something like fun with all its memes and irony, and is therefore completely different from Facebook and Twitter, where hatred and resentment have long reigned.
But there are also moments when Reddit brings anarchy into the world. The best-known example of this is probably Gamestop. Although the gaming retailer posted losses for years and its shares were rightly at rock bottom, the Reddit community continued to raise them to new heights. Mostly for fun, to annoy hated short sellers. But also to a significant extent in order to benefit from possible profits yourself. Even in cryptocurrencies there were fewer fortune seekers.
This attitude is exactly why the Reddit IPO this Thursday is not good news. Reddit has the potential to become a new code for gambling, causing lasting damage to stock culture. Because one thing is clear: no matter how bad Reddit’s numbers develop. The share price will form regardless – and will be incredibly volatile. Short-term hunters of fortune could have enough from one day to the next. However, this makes the price trend arbitrary, which is why the share is not for serious investors.
Good numbers – but what good do they mean?
You don’t even have to direct the accusation exclusively at Reddit. It is the company’s right to go public after 18 years. Although no profit has ever been achieved over the year, at least the momentum speaks in favor of the IPO. In the last quarter, we achieved a break-even with a strong gross profit margin of 88.4 percent. At 8 percent, costs are growing more slowly than sales at 19.9 percent. And at 27 percent, user growth was also significantly higher than the competition from Meta, X & Co. These are good numbers, which Reddit rightly cites.
But the question is whether it will stay that way. Reddit benefited from two things in particular last year: artificial intelligence as a buzzword and a Google gift. The search engine massively upgraded the content on the platform, making it appear more often in Google searches. As a result, traffic on Reddit has increased significantly – and as a result, advertising revenue.
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However, Reddit seems to be having a hard time converting the higher traffic into regular users. Only half of the page views come from logged in members. The rest come from people who visit Reddit more or less randomly because of a specific concern. In this group, growth was at least 33 percent, while the number of members increased significantly less. This also puts pressure on the average revenue per user, which is only $13.60. Reddit users seem relatively blind to advertising because they have little knowledge of the Reddit ecosystem. For comparison, Meta is worth more than $50.
Nevertheless, Reddit’s fundamental development is pointing upwards. But, and that’s the problem: who cares at all – if it’s not the market that sets the prices, but a community?
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