Founded in 2005, as the internet went from dial-up to broadband, Reddit (NYSE: RDDT) has been called the “front page of the internet.” It was and remains a place where people post news stories, fake or real, and millions of opinions. It was eclipsed over the last two decades by X (aka Twitter), Facebook, and a group of smaller social media. However, it has lived on long enough to go public eventually. At $7 billion, its market cap is considered rich by many investors. That is, perhaps, why its stock has done poorly relative to the hype ahead of the IPO. There is speculation about what happens to shares next.
Reddit may not recover from a sell-off that took the shares from a post-IPO high of $74 to $47. It has never made a profit, which may be one reason. Last year’s revenue barely topped $800 million, which means it trades at almost ten times its revenue. That revenue is up 20% from the year before. However, growth from such a small revenue base would have been better if management had known how to monetize users.
Reddit’s investors received unwanted attention, which may be why the stock tanked. Small hedge fund and short seller Hedgeye Risk Management said it had taken a short position. According to The Information, “…its engagement and monetization rate didn’t justify its stock’s premium valuation at around 14 times sales.” Typically, a negative call from a tiny hedge fund would have less effect. But, enough investors saw the wisdom to dump Reddit shares.
Reddit’s hurdle is to prove that its management knows how to monetize and that it can quickly generate annual revenue of over $1 billion—and, of course, make a profit.
Sponsored: Find a Qualified Financial Advisor
Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.
The post Can Reddit Recover? appeared first on 24/7 Wall St..
Click this link for the original source of this article.
Author: Douglas A. McIntyre
This content is courtesy of, and owned and copyrighted by, https://247wallst.com and its author. This content is made available by use of the public RSS feed offered by the host site and is used for educational purposes only. If you are the author or represent the host site and would like this content removed now and in the future, please contact USSANews.com using the email address in the Contact page found in the website menu.