Home » Reddit IPO being planned: New Constructs CEO warns of lack of stock market success | 03/17/24

Reddit IPO being planned: New Constructs CEO warns of lack of stock market success | 03/17/24

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Reddit IPO being planned: New Constructs CEO warns of lack of stock market success |  03/17/24

• Reddit IPO in planning
• New Constructs CEO warns of lack of stock market success
• Another zombie stock

Reddit IPO in the works

Reddit, the company behind the online forum of the same name, has been working on an IPO since 2021. Shortly before, the website received public attention through the “WallStreetBets” subforum, as small investors there discussed the rally in meme stocks such as GameStop and AMC. According to current information, the Reddit IPO is expected to be completed this month. The company is aiming for a valuation of $6.4 billion. OpenAI CEO Sam Altman is one of the largest shareholders in the online forum, but the Chinese Internet company Tencent is also invested.

Reddit IPO warning

However, David Trainer, CEO of the analysis company New Constructs, is not at all optimistic about Reddit’s IPO. As the strategist explained in an article published on Fortune, he considers the billion-dollar valuation to be highly exaggerated. “While Reddit’s expected $5 billion valuation is half the private market’s $10 billion valuation in 2021, when interest rates were zero and money was cheap, “But it’s still far too high,” said Trainer. At the time of Trainer’s statement, the company was still aiming for a valuation of $5 billion before raising it shortly afterwards.

Return of the scrap IPO

Not only does the New Constructs boss think the IPO plans of the Reddit management team around CEO and co-founder Steve Huffman are not a good decision, but he also sees the IPO as a negative signal for the stock market. “The Reddit IPO marks the return of the junk IPO,” was Trainer’s harsh verdict. “Reddit reminds me of the fast-growing but highly unprofitable IPOs of 2021.” He drew comparisons to the stock market debuts of companies such as DoorDash, Robinhood, Coinbase, DiDi Global and Rivian, which were carried out between 2020 and 2021 and were, on the whole, anything but successful. “Do you remember how they did? Most of them are on my zombie stock list, which is probably where Reddit will be if it ever goes public,” Trainer painted a less-than-confident picture. New Constructs launched the New Constructs Zombie Inverse Index in 2022, which tracks stocks that the analytics firm believes have a high risk of falling to $0. In addition to the stocks mentioned, there are also meme stocks such as AMC, GameStop and the manufacturer of vegetarian meat alternatives Beyond Meat.

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Negative signal to IPO market

Trainer is certain that the Reddit IPO will result in losses for investors in the online forum. In addition, the jump onto the trading floor will also send a negative signal to the entire market for future listings. “The first social media company to go public in years will not only test investors’ appetite for the next loss-making deal, but also provide clarity to the IPO market in general,” said the company’s CEO. “Let’s hope investors don’t throw caution to the wind and jump into the latest profitless venture. A thorough review shows that Reddit is not only unprofitable, but also grossly overvalued.”

Reddit in der Bredouille

Trainer is aware of the importance of Reddit for the WallStreetBets movement. However, this would not outweigh all the criticisms of the Internet company’s stock market plans. “Sure, Reddit has produced some of the most volatile meme stocks via the WallStreetBets subreddit, but the company has never been profitable and should not be traded on the stock market,” he added. “I believe the company will never be able to monetize its platform without alienating its users, and Reddit’s entire premise is user-generated content. This business model is inevitably built on a dichotomy: make money or keep users happy.”

Continuation of the meme rally

Don Montanaro, president of the stock brokerage firm Firstrade, however, told “MarketWatch” that the Reddit IPO represents an “unprecedented situation” as the platform itself becomes part of the WallStreetBets movement that just started there. “The phenomenon of meme stocks has been seen in stocks that have already been on the market and listed for some time. Here we have the debate and the possibility of a stock being a meme stock before it even goes public works,” says the entrepreneur. However, Montanaro believes it is unlikely that the Reddit share will become the target of short sellers immediately after the IPO, as was the case with other meme shares only a certain time after the initial listing. “This is partly due to regulation and the way short selling works – every brokerage firm has to be able to build a position in a stock before it can lend it out,” he said.

Editorial team finanzen.ch

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