Can Reddit Recover?
Founded in 2005, as the internet went from dial-up to broadband, Reddit Inc. (NYSE: RDDT) has been called the “front page of the internet.” It was and remains a place where people post news stories (fake or real) and millions…
Founded in 2005, as the internet went from dial-up to broadband, Reddit Inc. (NYSE: RDDT) has been called the “front page of the internet.” It was and remains a place where people post news stories (fake or real) and millions of opinions. It was eclipsed over the past two decades by X (aka Twitter), Facebook, and a group of smaller social media. However, it has lived on long enough to go public eventually. At $7 billion, its market cap is considered rich by many investors. That is, perhaps, why its stock has done poorly relative to the hype ahead of the initial public offering. There is speculation about what happens to shares next.
Reddit may not recover from a sell-off that took the shares from a post-IPO high of $74 to $47. It has never made a profit, which may be one reason. Last year’s revenue barely topped $800 million, which means it trades at almost 10 times its revenue. That revenue is up 20% from the year before. However, growth from such a small revenue base would have been better if management had known how to monetize users.
Reddit’s investors received unwanted attention, which may be why the stock tanked. Small hedge fund and short seller Hedgeye Risk Management said it had taken a short position. According to The Information, “its engagement and monetization rate didn’t justify its stock’s premium valuation at around 14 times sales.” Typically, a negative call from a tiny hedge fund would have less effect. Yet, enough investors saw the wisdom to dump Reddit shares.
Reddit’s hurdle is to prove that its management knows how to monetize and that it can quickly generate annual revenue of over $1 billion—and, of course, make a profit.
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Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.
McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.
His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.
A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.
TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.
McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.
