Should You Invest in RDDT?

Summary

Reddit's IPO has attracted many new investors, but it's important to be cautious as the company faces volatility and domestic bias. The platform's revenue primarily comes from advertising, with a unique user base that doesn't overlap much with other social media, making it appealing to advertisers. However, Reddit faces challenges in monetizing its international user base and its dependency on Google. The company's valuation is high, and it's not clear if it fits into the categories of stocks that the speaker typically invests in, raising questions about its long-term investment appeal.

Takeaways

• 🚀 Reddit's long-awaited IPO has attracted many new investors, potentially due to domestic bias and the platform's user base.
• 💡 New investors should be cautious, as IPOs are volatile, especially those with significant hype around them.
• 📈 Reddit's stock ticker is RDDT, and it has seen substantial trading activity, with a peak of 70% over its initial price offering.
• 👥 Reddit's user base is substantial, with 36.4 million logged-out users and 36.7 million logged-in users, indicating potential for monetization.
• 🌐 Geographical differences in user value are evident, with users from the United States being more monetizable than those from other regions.
• 📊 Advertising is Reddit's primary revenue source, accounting for 98% of revenues, but the company is diversifying into data licensing and user economy monetization.
• 📈 Reddit's revenue growth is slowing, but gross margins are high, suggesting potential for profitability with cost adjustments.
• 💰 Despite not being profitable, Reddit has a significant cash reserve and a low cash burn rate, providing a runway for growth.
• 🔍 The platform's appeal to advertisers is strong, with a unique demographic and high use of first-party data for targeted ads.
• 🌐 International revenue is a challenge for Reddit, as the percentage of total revenues from international users has decreased.
• 🤔 The transcript suggests skepticism about Reddit's business model and valuation, not fitting the criteria for the speaker's investment strategy.

Q & A

What is Reddit's current status in terms of its Initial Public Offering (IPO)?

Reddit's long-awaited IPO has finally taken place, with the ticker symbol RDDT. The stock has experienced significant volatility, trading up to 70% over its initial price offering of $34.

What potential issues do new investors face when considering Reddit as an investment?

New investors should be cautious due to the inherent volatility of IPOs, especially those that are highly hyped. Additionally, investors should avoid domestic bias and focus on the merits of the investment rather than just the functionality of the platform.

How does Reddit's business model primarily generate revenue?

Reddit's business model primarily generates revenue through advertising, which accounted for 98% of its revenues. However, they are diversifying to include data licensing and a user economy as part of their multi-chapter growth strategy.

What is the significance of Daily Active Unique Users (DAQ) for Reddit?

DAQ is a strategic metric for Reddit, representing the number of individuals who have opened the Reddit application at least once during a 24-hour period in the last quarter. It indicates the active user base and is crucial for revenue generation.

How does Reddit's Average Revenue Per User (ARPU) compare between different regions?

Reddit harvests close to $6 per user in the United States, while the rest of the world generates around $1.30. This disparity highlights that visitors from the United States are more valuable for advertising revenue.

What challenges does Reddit face in monetizing its international user base?

Reddit struggles to monetize its international user base effectively. Despite accounting for 50% of users, international visitors only contributed 18% of total revenues in the last quarter, indicating a lower monetization rate compared to the U.S. audience.

How has Reddit's revenue growth been trending?

Reddit's revenue growth has been increasing, but at a slower pace, with an approximate 20% increase noted. However, the company is still incurring losses, which is common for growth companies.

What are the gross margins for Reddit, and what does this indicate about their potential for profitability?

Reddit's gross margins are upwards of 85%, which is very good. This high margin indicates that there is significant potential for profitability if the company can trim unnecessary costs and focus on performance.

How does Reddit's dependency on Google search impact its business?

Reddit's dependency on Google search is a concern as any changes in Google's algorithms can significantly affect Reddit's user acquisition. The company has recognized this issue and is working to diminish its reliance on search results for traffic.

What are some of the challenges Reddit has faced historically?

Historically, Reddit has faced a roller coaster of scandals over unsavory content, abrupt leadership changes, and user revolts. These distractions have contributed to challenges in content localization and user engagement.

What are the key takeaways for new investors from the video regarding Reddit's IPO and investment strategy?

The video advises new investors to be cautious, focusing on understanding the investment merits rather than being attracted to the platform's functionality. It also emphasizes the importance of diversifying investments and not relying solely on social media platforms like Reddit for investment advice.