Reddit IPO: To the Moon! Or Back Down to Earth?

Introduction [Music] welcome back guys to another round table my name is Adam I have rusman hello and Victor hi everyone thank you so much for joining us and today we're going to talk about the Reddit IPO so it just ipoed and this is pretty big news because I think the last tech IPO was in 2019 that was Pinterest so whenever there's a tech IPO a lot of news goes around it because Tech is a very exciting sector a lot of I mean the Magnificent 7 a lot of them are tech companies as well so um according to news this IPO was uh five times over subscribed so there was a lot of demand for it MH yeah so uh you have a Wall Street back uh gang yeah I mean you remember the GameStop Saga that was fueled by Reddit so for those who don't know what Reddit is maybe I will share because I'm a heavy Reddit user uh I need to look at my screen time let me see when I was I use Reddit every day so it tells me that I use on average 7 hours or as of this week anyway 7 hours I've been on Reddit oh my goodness so I'm reading a lot of stuff so you're wondering what Reddit is it's basically like an online Forum I access it on an app modern day Forum it's a modern day Forum so it's not like know forums where you kind of like post the reply and you post the reply and you post a reply and then it goes on for like I don't know 500 pages or something like that it's really hard to keep track of things the thing about Reddit is that it splits into threads so you can have a reply and then a nested reply a nested reply and then they carries on and that's that reply so it kind of groups conversations into segments in the overall topic all right so it's very easy to follow and there are many many subreddits which are the different kinds of forums that you find on Reddit so let me just give you some examples of the subreddits that I follow on Reddit just give idea what's out there okay so I follow Singapore so Singapore has a subreddit so anything about Singapore happening in Singapore uh any news any gossip in Singapore is there I follow soccer I follow Mi the I follow art yeah yeah yeah so I follow uh Kelvin and Hobs I love Kelvin and Hobs I have cozy places uh I have uh Fantasy Premier League a lot of things geopolitics as well you follow Wall Street BS I don't follow Wall Street B so that there there's a sub on stocks as well talk about investing like proper investing uh Wall Street bets is kind of like people are just doing crazy bets on Street all they making big bets on options at a point in time so Tesla was a big discussion on W bets for a long time and of course the GameStop Saga Robin and all that stuff uh I follow investing uh a lot of things gym stuff uh Know video games Lego so I have a lot of things that I follow so if you if you have some obscure interest or general interest you can find it probably find it on Reddit and it's a global thing because I think let's say you're interested in uh I don't know cats that wear hats I don't know something like that as an example you could probably find like people out there in the world that like like so a lot of big subreddits general interest and very Niche and obscure subreddits as well so if you not checked out Reddit for yourself just download the app go find out stuff and you may find a lot of things that you like uh so that's how Reddit works and I spend a lot of time of it because I love reading and learning new things yeah some I mean there's video and images and stuff like that so I think that's the best way to explain Reddit it's basically a form and of course the main feature about this is that you get to upvote replies so if there's a really good reply that's really funny or really informative people upvote the thing and that rises that rises to the top so the most important the most popular discussions go to the top automatically so when you land on something you read those things first rather than trying to have to go through the whole threat and find finding the interesting discussions in the whole thing which is how all forums are organized maybe the way I interpret is that it's very similar to Facebook where you follow people but Reddit you follow based on the interest and topic yeah that is the main difference that I see yeah so a lot of topics there so up the up featur is a main thing uh and I think there used to be gold silver Awards they long no longer have that uh so there there was some time back but basically that's how you use Reddit all right so you basically find a lot of uh interest topics and discussions that rise to the top all right so that's what Reddit is so they going go IPO uh we didn't talk about its business model so that was my that's my user experience use Reddit yourself I do only when I do search out question on Google and Google points out to me on Reddit there was same question and that's the time I use RIT I think that's a good point so I think there's some complaints nowadays about I mean I'm just digressing here but for Google nowadays when you search something on Google Google yeah you kind of get a lot of U SEO optimized sites review based things which don't seem authentic anymore yep so when you go to Reddit you know most of the time it's going to be a actual that sharing their opin user based experience uh and you feel that's that's like you can can trust more so you're doing like a product more genuine SP yeah yeah so that you can kind of like oh this is really what people are thinking about something rather than some page that's optimized for SEO of course they like bots on Reddit as well we'll go into that differently another time but that's uh Reddit okay so use Reddit for yourself so let's go straight Business model into the business model of Reddit uh how do they generate Revenue I think the main source of Revenue that they really generate from is actually advertising right so so if you if you look at uh their interest group right so a lot of their things are segmented already so it's very quite targeted right so you got your animal your Art and Design so so when Advertiser they advertise into redit right they can just go direct to the interest group and and that's at this moment right is their main income they do sell some uh R avatars right but that's still a very small amount and they have this redit premium where you want to subscribe just like YouTube premium right you subscribe and you don't have ads anymore right and I think the up and coming uh Revenue generator for them is actually data licensing mhm because of a lot of the AI the large language model uh reddits have really a lot of data dat so they they're really looking at uh how to sell they already recently in January 2024 uh they already licensed arrangement with third party for the next two or three years for 203 million okay yeah so I think we look at the redit users based on what they have daily active uh users is about 73 million as of December 2023 okay so if you were to compare this with the monthly active users I think you are talking about 500 uh million users so that in term of user engagement is about 15% okay right so if you compare it with uh Facebook Facebook is about 66% user engagement and their daily active user is about 2 billion that's a big difference billions about Millions yeah and then their money is about 3 billion so of course you in the way the way I look at the user engagement is that Facebook is a lot more uh sticky sticky uh and people are going back to use every day redit maybe there are some hardcore users like you that go back every day but not everyone will go back every day yeah so that's why only 15% of the user engagement over there right and you look at the traffic split uh the users who locked in to the to the to the Reddit I think half of it uh basically 36 million actually locked in to use redit and then the other half is not they didn't lock in they probably come from like search engine and then land on the side but it's a unique user which they count as one okay yeah so I'm one of those that consider as lock out I don't even remember if I have Reddit account you join Reddit and then the day that you join is called your kick day a kick day happy kick day oh really oh yeah I also like R just a go okay yeah so okay so advertising yeah advertising I think because of that high users are uh impression that land on their side I think that that allows them to actually monetize it through advertisement right and then the amount of contents the user generate that data I think until that open and eye came about that become a business model for them because they realize hey we have a throw of data where I think users really like you know they produce on the day-to-day basis and that's so much data that they can use it and package it and sell it to companies like Google right and they can you know train their models okay one thing I point about Reddit is different from Facebook and Instagram that it's it's Anonymous you basically set up an avatar you don't have to tell anyone who you are yeah and you can just go in and explore what Reddit has so if you're read into some really kinky stuff I don't know no one knows cuz you're anonymous okay um but in in general you can go in and basically share stuff like for example there's there's I think there's some like Ms I just mentioned basically people are sharing situations about their life wondering if I did something wrong and a lot of times you want those things to be anonymous you don't want to tell the whole world ohre you know I'm this person I'm the here but it's Anonymous so which is liberating for some people because on on Instagram I mean you can have fake accounts on Instagram and stuff I know but um yeah it's different I mean if you want to do well in like Facebook uh Instagram or YouTube you have to show your face show who you are but in redit you maybe I just give example I was just looking at start ready thre parenting and then there was this this I don't know who this guy like was my husband is a fantastic partner but a bad daddy you don't rented this on your Facebook or your you Facebook yeah so I don't know who the heck is he right but yeah these are the places where you can vend your anger you can not find answers there yeah yeah so there's a different experience like it's kind of the the old days of the internet where a lot of things were Anonymous on the internet back in the '90s um so advertising is the basically main Revenue generator I mean it's very simple for those who who want to understand you basically scroll like Facebook or Instagram it's it's a feed that pops up all the things that you follow and then ads will just come up yeah yeah and if you like something you just click on that and of course when you go into the subreddit and your browsing ads will also come up here and there I think the reason why advertisers uh advertise is mainly because first they have interest right so they are sort of know that what interest you are in and then they can actually Target do that Target advertisement and the other one is of course the users uh those that use Reddit I think majority of them don't use traditional social media right they based on their research I think 32% of them the Reddit users don't use Facebook you are one of them right I highly use Facebook I mean I do I use I because 41% of their uh T their their R user right are actually between 18 to 34 so they quite a huge uh numbers of like the younger generation okay all right so that's his business Financials model it's quite simple to understand just basically eyeballs people scrolling through the feeds and then advertising and now we have the data licensing because of the large amount of language that they have uh that's that's that's coming up okay so when it comes to its uh financial performance what is it like because now we kind of think like it this a tech business is there a lot of skill a lot potential what but what do the numbers tell us okay so I think if you were to look at their they only give two years numbers comp between 2023 and let take over so redit Revenue has been growing at about 5% compounded analyze return since 2020 but if you look at the compare the IPO that released right only the 2 years ler which what pictor saw they only has grown about 20% as compared to last year right so 2022 versus 2023 they grown about 20% also because their average revenue per user on a quarterly basis also slowing down slow SL down yeah so their average revenue per user is about $342 uh that was based on fourth quarter of 2023 as compared to Facebook is were close to $10 okay right so it's like a big difference there and I think a large part of it uh okay they they their revenues are growing very nicely but their profits are loss making I think they've been losing money since day one until now they have not even uh managed to breig even and cash FL also negative yeah cash FL is also negative uh so and I was zoom into the detail how come this companies is losing money and I realized that they actually spend quite a bit of money on the R&D research and development right so I'm not sure what so Hightech about this uh platform it looks like very normal ID platform to me right just a modernized forum uh but they spending like more than 50% of Revenue on R&D and I see this as like their M Power cost basically okay yeah but they call it more fancyful term R&D so that you know they tech company I mean in in normal accounting like R&D yes they spend the money on R&D but like manow cost when when those that involve R&D they also will be charged under this R&D segment yeah and it says that R&D expenses include the salaries B and stock based compensation for engineers and other employees engage in the R so it does say that way the not okay so uh so apparently I think maybe their size is still very small and it's very expensive to hire uh Tech engineers in the US so that looks a bit uh on the high side very similar to Twitter right they small and as you hire a lot of it engineer programmers um that actually makes the whole uh expense item on the high side compared to their revenue right so that's why they have been I think losing uh money since day one and they have not figur it out how to make money and then now they are they go IPO but I think the next thing that might bring them to the break even price or break even uh level will be their data licensing right which they just started uh late last year was a very small part 2% of the total revenue you come from data licensing and then the 2024 onwards I think they have agreement with Google which is going to bring in about 60 million in term of Licensing revenue and that licensing Revenue seems like a clean you might flow down straight to the bottom line because they already have man power cost that already incur and this is the additional income that they realize they can make money out of it yeah so it's something new so I think that might lift them up in the next uh few years if let's say ai ai really proven to work very well so the the more company will want to train their AIS using the data Growth that they have all right so the numbers don't I mean the financials don't look great uh but it's a thing with a lot of tech yeah startup I mean it's a startup but it's been around since 2005 y so almost 20 years actually but it never made a never made a profit yeah in that time um but the thing with tech is that people some don't you don't need make a profit and people are still excited about it because of the growth um do you see do you see the growth coming for something like redit because it's a lot smaller than like Facebook Facebook is 2.2 billion worldwide uh Reddit is only 73 million which implies there's room to grow yeah the pettion in the US I think I calculator is about 11% which is mean there's a lot of room to grow but I think this buiness business it's still a primary a tax based business so they are likely going to be a niche player in the industry they're not going to grow as big as your Facebook cuz like Facebook is like kind of like General life like photos Friends images uh videos and you follow people around you so I think that uh is more it's a lot easier to consume and the users I mean people generally want to feel connected right I mean ready also does provide that but it's still very TX based that's the limitation that I see they do have a lot of images over there but if you compare with uh Instagram or Tik Tok Tik Tok is like you know short V form and then even meta or Facebook have to Pivot to that shortform video using the re right so that has been the trend I think moving forward so for tax base it will still grow maybe as more people find that hey RIT is actually quite it's not bad right I mean you have a a lot of uh you know topic interest and when you have problem or you want to find answer solution you can go to Reddit you want to keep updated with some of the news you can go to redit m yeah yeah so I I Valuation I mean I makes I like Reddit personally but I don't know whether as an investor like you said that scale is there but I think I think there's some potential but the financials don't look uh fantastic So based on that what do you think about its um you know its price I me let's let's just assume whenever you're watching this I mean the price could be anything but let's assume the IPO price of I think $31 to $34 that was the range I think the range was about 6.5 billion right so I did a comparison because uh if you go to the radi o prospectus they actually shows you like uh they devid their competitor into like for seeking information uh which is you got your Google Amazon YouTube Wikipedia X and many others then for entertainment they say meta right which is got Facebook Instagram trats and WhatsApp YouTube snap and Tik Tok and all this then for passion Hobbies is usually Facebook group Discord X and Pinterest and then for peer-to-peer uh Commerce and user economy then they say it's Facebook Marketplace next door crack list and P Mark SD and robock right so so I I took all those that are are listed like your alphabert Amazon meta snap robock Pinterest SD and next door so if you were to look at uh all these players right uh most of them are profitable and cash flow positive actually okay except for um let's let's talk about cash flow first it's easier right so cash flow right even though uh some like some companies like robock and snap right they are profit negative right but they are cash FL positive okay the only one that is Cash FL negative is next door okay but then if you look in terms of their price to sales because uh R is not making money so I have to use price to sales right the average the industry average for all this place is about 5.57 uh times times right okay so if you look at radi the price to say is about at 6.5 billion is about 8.08 I would say it's at the higher band okay okay it's not even at the low average or Bel low at the higher band right because of course they want to IPO do good time right they want to raise as much money as possible so so the higher band companies are like meta 9.47 time but meta has got 71 billion in terms of cash flow then uh another one is robolx right 8.03 time but they even though their net profit is negative 1.1 billion but they have a 458 billion sorry 458 millions in terms of uh uh cash flow okay right for roock so so I think redit is is at the higher band okay but it does not um how say it was it was at a high band and also the pre-ipo players like they have this rule usually the pre people right they bought into redit before the IPO right they are supposed to when they IPO they supposed to hold 6 month okay but for redit it's like there's no lock they there's no locking period right so it it give it entice you know people to sell the stock all right so I mean what whenever you're watching this video I mean um it's really IPO basically so with price is whatever it is um but how you would value uh Reddit is based on price to sales at this point because there's no cash flow yes correct no profit so price to sales basically and based on that is high the higher more expensive than the rest un I mean if you watching now depends on when you watch the price can fluctuate up and down right but it's even it drops yeah it's still at a higher B but so basic basically this is a company that we don't basically kind of touch because there's no cash flow it's not there's no profit it's something just watch and I think most important part is a data licensing model right if they if I don't know how long that is going to last uh and how big that's going to grow because ultimately that will be the main thing that will drive the profitability okay if they can pull it off uh then that might you know cause a company to become profitable I think that's a what one growth segment but I think advertising like you said is still the biggest chunk of Revenue so the main the fastest way to basically increase revenue is to increase advertising but that could like B basically alienate a lot of users because all of a sudden like you're scrolling and I see an ad and AD and AD which for nowadays Reddit it still feels like there kind of almost like an ad free space in a way I mean I know they're ads but I I hardly see them if I do I kind of just go through them it's different from like Facebook I guess or Instagram or you see a lot more ads but that could change with this you know IPO and you know they want the user pay to go into Reddit premium I've not spent a cent on Reddit that's the thing will you go if they flat you with a lot X I I I think I'll still stay on Reddit because there are a lot of interesting discussions I cannot find anywhere else or if I can find them on the Internet they're all over the place say they FL you will you go and pay the premium I I may I may yeah I may so that's maybe I might just go go through the ads cuz I've not paid premium for anything I do YouTube I watched the ad oh let's see who's advertising today it's okay you are the you are the product I'm the product right because I'm the eyeball uh I spent a lot of time on Reddit but I honestly have not spent a Time on Reddit you bought on you did you not buy the avat I didn't buy the I don't I'm the Skins man when people play fortnite and they buy skins and I don't get it it's I don't I don't money people like that but I don't yeah I don't spend any money on that so I just basically scroll and read so to answer the question yeah I don't think I would go anywhere else at this point in time so this is their mode basically they have a lot of people in different interest groups they're all in one place if you want to find something similar out there you probably to Google it some blog or Forum somewhere else you don't have it centralized all together on the r butora think is a bit messy nowadays a lot of things that but there there may be a new player that will come out to easily replace I mean they they we actually replace the Forum right yes and and eventually something will improve and you know yeah I mean the mode I wouldn't say is very the mode right now is Network the network effect because people are there that's why you go there but the inter face itself is not entirely special or anything anyone can duplicate that uh just the people there are still there uh I mean you seen the same thing with Facebook Instagram if Facebook didn't own Instagram it would be very different correct meta would be a very different company today so there's always a new platform that could come up so that that is the risk as well y yeah so but at this point this is something that you just wait and see I mean you will never consider this at this point that the was bros do their job yeah yeah yeah the wall stre B Bros I mean I mean I'll just grab a popcorn and see how the pr R it yeah so so I hope that was a pretty good um summary of everything so I mean we wanted to cover an an Tech IPO cuz it's the last one like I said was 5 years ago 2019 uh it's always like interesting to see know Tech IPOs coming up especially something that that's you know it's can basically it's Global it means it's good time it's a good time yeah that's a good point so I wanted to share that with you so we're not interested in Reddit as investors right right yeah but as a consumer I use it myself yeah but I mean it's interesting to track the data right I mean like now you know that they're going to have this segment that's growing but you track TR track until this segment really becomes a contributor that can move their profits then you you can consider to buy buy into them it's never too late yeah so I think if IPOs is very volatile you don't know it's going to go up or you going to go down uh it can go anywhere I mean post IPO as well you know it's like I think Robin Hood uh had a pretty big IPO I think it ran out for few weeks I think I don't know they just went down again so I don't know what's going to happen with Reddit so uh we're just going to watch we're not interested as investors but we just wanted to share it with you because the tech IPO I thought was an interesting business model um cuz I use it a lot myself and uh just share it with you okay so but we're not interested in it we just want to cover it and hope you learn something from that is there anything else want to share we should c a redit fit person I don't think a lot of people be interested in that and you could become you know there I tell you this funny story so you say you create a sub on fifth person it could you could create it for the company but it could eventually be taken over and become I don't know what so the thing is I'll tell you this so there's this sub called Our Truth okay so truth is B I don't know what it was about but basically it became it took it took it got taken over by wrestling fans to talk about the wrestler Our Truth so it just stuff like happens like that okay so uh stuff yeah stuff like this happens on Reddit on the internet so it's really really funny so that's pretty much it right guys okay so my name is Adam that's rusman thank you Victor thank you so much for watching this any questions put them in the comment section of course if you like this table please give us a thumbs up because that really helps with our videos and recommendations and of course subscribe to our Channel any more round tables coming up and we'll see you again