Reddit is gearing up to launch its IPO next week, eyeing a valuation of around $6 billion. While some are excited, others point to the fact that the social media site isn't profitable, posting net losses of $90 million in 2023.
Crunchbase News Senior Data Editor Gené Teare joins Yahoo Finance to discuss Reddit's upcoming IPO and what makes the platform unique in the social media sector.
Teare lays out what the current sentiment for the stock is: "I think the signals here are very mixed. I think some people feel like this is a little rich as a valuation. They're targeting I think on the upper end of about $6.4 billion, and that has us saying, if this is a company that can still grow 18 years in then it might not be so rich...Its revenues around $804 million last year and it did grow that 21%. So if it can keep growing its revenues then there is potential in the stock, but I think a lot of that revenue growth is more recent. So I think there's a lot of doubt around whether this is a little rich."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino
Video Transcript
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JOSH LIPTON: A big event for markets next week, Reddit's initial public offering. The company eyeing evaluation above $6 billion, but the social media platform still isn't profitable. Joining us now is Crunchbase News Senior Data Editor Gené Teare. Gené, it is good to see you. I'm just interested today. What do you think the reception Reddit is going to be? Because it's an interesting name, Gené. I don't-- I don't actually know what the comp would be for a name like this. Maybe you do. And you've got a company that's been around a long time, Gené. But it's still posting losses, right? Net loss of around $90 million in 2023. How-- How do you think, if you were to take a bet here, investors respond?
GENE TEARE: Yeah. I think the signals here have been very mixed. I think some people feel like this is a little rich as evaluation. You know, they're targeting, I think, on the upper end, about 6.4 billion. And others are saying if this is a company that can still grow 18 years in, then it might not be so rich. So I think it's interesting-- it'll be interesting to see. It's revenues were around 804 million last year and it did grow that 21%. So if it can keep growing its revenues, then there is potential in the stock. But I think a lot of that revenue growth is more recent. And so I think there's a lot of doubt around whether this is a little rich. We have heard reporting that on the secondary markets, there is some purchasing around the $5 billion mark. So, yes, it's a big IPO. It should be north of 5 billion. Whether 6.4 billion is a little rich, we'll wait and see.
JULIE HYMAN: Well, and Gené, sort of to Josh's point and to drill down a little bit, what do you compare it to? Right? Do you compare it to publicly traded social media companies? Or should people be thinking about it differently? I mean, how are the bankers thinking about it and valuing it? Kind of-- What are they comparing it to?
GENE TEARE: Yeah. I think it definitely is in the social media space or the attention economy. And I think there are a lot of companies old who've been around for a very, very long time and have huge audiences. And I would put Meta in that space, X in that space, YouTube. And then there's a lot of newer companies who've come out, but Pinterest, the Snaps. TikTok is obviously a big one. Discord. Both TikTok and Discord are not public yet.
So I think there are a lot of companies going after users, users contributing, users' attention. And then we also have the new AI space, where a lot of companies might be moving away from search and more into using these new AI tools. So I think a lot of competition around this sort of social media space. I think most people are comparing it a little bit to Pinterest and to Snap. But I think, in some ways, Reddit is quite unique. And I think, you know, we've seen companies gather a lot of attention or gain a lot of attention in the media-- social media space. And then flame out and not quite kind of meet that growth potential.
Facebook took out a lot of its competitors. So I think in some ways, the fact that it is still around 18 years on says something about the fact that this site offers something quite unique. It has all these subreddits, more than 100,000 neighborhoods they call it or areas of communication. If you have a very niche interest or something very specific, you can go find it on Reddit. Some of the communities are in the tens of millions, some in the millions, some smaller. So I think the fact that it's 18 years in has 73 million daily active users means this company has been around a long time, but it has legs. And maybe there's opportunity for it to grow in-- in 2024.
