![]() I'm talking about the golden age of Internet forums. It's served as something of a bridge from the old Internet to the Internet as we understand it today. Started in 2005, it's slightly younger than Facebook ( META) and four years older than Twitter/X. In fact, it's what you might classify as a legacy social media platform at this point. The PlatformĮven though the IPO is new, Reddit is not. This might be easier to gauge if we talk more about what Reddit is and its place in the social media landscape. They do have some revenue, but it's a question of how much they can raise while keeping costs under control. Still, let's look at the income statement. Without any profits and with a preferred equity position that dominates the common, it's hard to find anything to use as the basis of a valuation. Many of the companies that own this preferred equity also have common stock ownership, so realistically I think the Board will distribute preferred dividends if the profits ever materialize. F-24), come with voting rights for board seats. Technically, the Board could bypass this obligation by paying no dividends, but several of the preferred issues (pg. Since the full 8% is meant for all the issues, that means Reddit would have to earn a $146.6M profit before the common could receive dividends. ![]() While noncumulative (they won't accrue in unprofitable years), these preferred shares have priority to receive dividends before the common. Preferred Dividend Obligation (Author's display of Prospectus's data) There were no dividends declared or paid through December 31, 2023. Such dividends shall be payable only when, and if, declared by our board of directors. The holders of Series A, Series A-1, Series B, Series C, Series D, Series D-1, Series E, Series F, and Series F-1 convertible preferred stock (collectively referred to as "Preferred Stock") are entitled to noncumulative dividends at an annual rate of 8% of the respective original issue price then in effect (approximately $0.21, $0.47, $0.50, $1.26, $1.73, $1.73, $3.40, $4.94, and $4.94 per share, respectively). These preferreds could also prove to be quite expensive if profits ever do occur. That's $1.85B over $1.6B, so there is little safety for the common in liquidation if the IPO's proceeds (about $450M) run dry. On top of that, this is a business where you actually see a significant amount of preferred equity in the capitalization, in excess of the total assets! In essence, the business makes no money, and it wasn't until 2018 that they even tried. Additionally, we did not begin meaningful monetization efforts at Reddit until 2018, and we are currently exploring new strategies for monetization. ("Advance"), Condé Nast's parent company, in 2011. ![]() We did not begin operating as an independent, private company until we were spun out of Advance Magazine Publishers Inc. We have incurred substantial losses during our history and may never achieve profitability. In their risk factors, they even state (pg. However you want to measure profits (Net Income, Adjusted EBITDA, Free Cash Flow), you get a negative number. Yet, based on the Prospectus they released, that isn't the case. As is usually important in my investment thesis, I want to be an owner of a profitable business. The initial problem is that the company does not make money. The Investment Opportunity (Or Lack of It) I'll discuss the financials and leverage my background as a user, arguing that long-term investors with RDDT would be better off selling. After considering the offer, I have declined to move forward, despite the favored terms. Reddit did reach out to me recently, as it offers moderators a chance to participate in the IPO for the institutional share price through a direct purchase program. This put it in the top 5% of subreddits by size. For five years I moderated a subreddit that grew from about 3,000 subscribers at my start to over 100K when I departed in December. Reddit's ( NYSE: RDDT) IPO approaches and the initial valuation put it at around $6 billion.
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