Reddit starts this Monday the road show for its much awaited IPO.
According to media reports Reddit could be valued at as much as 6.4 billion USD.
This is significantly down from the last money raising round of Reddit, which valued the social networking and comments company at 10 billion USD.
According to Wolfteam Ltd.'s projections and estimates the projected IPO value of 6.4 billion USD significantly undervalues Reddit.
With 800 million USD in revenue for 2023 and 156 million USD loss for 2022, Reddit's intrinsic value is 17 billion USD, in Wolfteam Ltd.'s view. Recently Alphabet Inc, the Google owner signed a deal to purchase and use the information stored in Reddit's comments for 60 million USD. The idea is to use Reddit's comments board to train Alphabet, Google's algorithms, including the artificial intelligence, AI chat bot Bard, lately Gemini Large Language Model of Alphabet. Such a deal could open a whole new revenue avenue for Reddit, which could bring hundreds of millions of recurring revenue for Reddit a year.
Detractors point to the fact that Reddit has been loss making in the last several years. Reddit's comments board model is very scalable and with higher revenue Reddit could soon start making profits. Palantir was notoriously loss making exhibiting negative net profit margins of between - 20 % and - 40 %, but now Palantir, the scalable AI company is profitable and worth 57.59 billion USD on public stock markets.
Reddit possesses a treasure trove of information, which could quickly evoke new artificial intelligence, AI revenue streams for Reddit. In addition, via the meme stocks in mania in 2022, Reddit is very popular on Wall Street and many Wall Street investment banks' equity research analysts are likely to put in favorable research reports for Reddit.
Initially, immediately after the IPO Reddit's stock price and respectively market capitalization could fall as many insiders and many Reddit users sell their stock, which could turn Reddit into an even more undervalued company. Facebook, owned by Meta Platforms is the long dominant social network. Snapchat, owned by Snap Inc and Pinterest turned to be only a partial competition to Facebook. If Reddit achieves even a partial further success in social networking, which Wolfteam Ltd. believes it will, Reddit's market capitalization could even surpass 20 billion USD in the next 3 years. Reddit's brand is well known, which could provide further value to Reddit.
All in all, Reddit is undervlaued, according to Wolfteam Ltd.
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