Reddit – (RDDT) $57 Hold, till post lock up expires on 8/9, we might get it around $50
Last week I had written on Reddit when the stock was in the mid 60’s suggesting a Hold till it dropped 20-25% to around $50-54. Their lock up period post IPO expires on 8/9 and there could be a lot of shares for sale. With the recent turmoil I want to wait longer.
Here’s the link.
Summary
Reddit has an excellent business model of unique SubReddits.
Its user base is enthusiastic, passionate and sticky.
Reddit’s data licensing revenue stream is an excellent opportunity to grow – currently contracted for $203Mn for 2-3 years and a very profitable business.
Reddit turned cash flow positive for the first time last quarter with a margin of 12%.
The stock is expensive at 10X sales and could fall once the lock-up period post its 2024 IPO expires in August.
Its biggest weakness is a low Average Revenue Per User (ARPU) $4.77, even Pinterest and Snapchat earn almost double – around $8, and Facebook is in a different league at $68, but this should only grow from such a low base.