"The gathering place for retail investors" Reddit is here! The next YOLO stock?

AI unicorn ALAB debuted on the IPO overnight, soaring 72% on the first day, with a market value approaching nearly $10 billion, gradually igniting the enthusiasm for new stocks. Tonight, the famous social media stock Reddit will be listed.

In the 2021 short squeeze battle of GME and AMC, the collective actions of retail investors caused hedge funds to suffer huge losses, making Reddit's investment channel "wallstreetbets" famous worldwide.

A True Gathering Place for Retail Investors

Currently on Reddit, the investment channel "wallstreetbets" has 15 million retail investors who discuss the hottest stocks of the day.

For example, the most discussed stocks of the day are as follows:

The top four are: Trump concept stock DWAC, S&P 500 ETF, Nvidia, Micron Tech (soared after earnings report), with Reddit's popularity ranking eighth.

As Reddit is about to go public, discussions about Reddit events are also heating up in the "wallstreetbets" channel, with posts like the one below receiving 1,800 likes and 715 comments:

Impressive User Data, But Valuation Slashed

Currently, Reddit has over 70 million daily active users (DAU). In comparison, X and Snapchat have 250 million and 400 million respectively. In terms of advertising revenue, X had $20 billion in advertising revenue in 2023, while Reddit only had $8 billion.

Reddit aimed for an IPO during the bull market in 2021, with a valuation exceeding $10 billion at the time. However, the IPO was not successful, and currently, with a listing price of $34 per share, the market value is only $5.4 billion. Of course, a lower valuation is good news for retail investors.

However, the period of fastest revenue growth for Reddit has passed, and the main issue now is monetization. In 2023, revenue increased by 20.7% year-on-year to $804 million, with a narrowed loss of $90.82 million (compared to a loss of $158 million in 2022).

In recent years, the stock prices of social media platforms have been plummeting significantly. Both domestic platforms like Weibo and foreign ones like SNAP are being impacted by the short video trend. Coupled with the absence of a bullish market atmosphere in 2021, it is not surprising that Reddit's valuation has been greatly reduced.

Riding the wave of AI+Blockchain?

Currently, Reddit can be considered one of the largest Web3 community platforms. In 2022, it released an NFT that some users can purchase to use as avatars. Reddit's listing has also attracted attention from the cryptocurrency community. However, Reddit's actions in the Web3 field are not substantial.

It is worth mentioning that according to the prospectus, Tencent holds 6.4% of Reddit's Class A shares and 11.7% of Class B shares, totaling an 11% stake with 11.6% of voting rights, making it the second largest shareholder of the company.

Moreover, OpenAI's founder and CEO, Altman, holds an 8.7% stake, making him Reddit's third largest shareholder. Reddit generated $800 million in revenue last year, with $790 million coming from advertising, stating that user-generated content is the most valuable asset for AI training.

Reddit previously stated that it is still in the early stages of allowing third-party authorized access to platform data, including training AI models. In January, it signed data licensing agreements worth a total of $203 million, with contract durations ranging from 2 to 3 years. The documents show that the company expects to generate at least $66.4 million in revenue from these agreements this year.

In February, Reddit also announced an agreement with Google to allow Google's AI products to use Reddit data to enhance their technology. Large language models typically require a significant amount of human-generated content to improve.

The prospectus reveals that as of December 31, 2023, Reddit has over 1 billion posts and over 16 billion comments, ranking among the top ten most visited websites in the United States in December 2023. Reddit's content is particularly important for AI, especially as it serves as a foundational part for training many leading large language models.

The next YOLO stock?

Note: YOLO, which stands for You Only Live Once, refers to stocks that are crazily bought by retail investors.

Reddit allocated most of its IPO shares to its most active and contributing users, reserving a portion for retail investors. According to insiders, the company lowered the IPO price partly due to the consideration that loyal users would purchase shares at the IPO price.

Relatively speaking, the 15 million retail investors in the "wallstreetbets" channel are more important than users who received IPO allocations, as the former outnumber the latter by far and have a greater impact on stock prices.

However, for Reddit to become a YOLO stock is not an easy task. Firstly, it needs to have a low market value, followed by sufficient hype, and finally, a high degree of consensus among retail investors. Currently, Reddit does not meet all of these conditionsHowever, in the Reddit "wallstreetbets" channel, some retail investors also expressed bearish views.

More information:

Company website: https://investor.redditinc.com/overview/default.aspx

Prospectus: https://www.sec.gov/Archives/edgar/data/1713445/000162828024011789/reddit-sx1a3.htm