In March 2024, Reddit's stock market debut made headlines calling it…
"The return of the junk IPO”
On Monday morning, Reddit joins the S&P 500.
And I too was massively bearish when the company first went public.
Here were the facts as they stood in March 2024.
Reddit had existed for 19 years and had never once turned an annual profit, and even revenue growth was nothing spectacular…
The shares priced at $34, opened at $47, and closed at $50.44, giving the company a market value of about $9.5 billion.
Yet just 3 years earlier, private investors had valued Reddit at $10 billion. Meaning even the first-day pop didn't get it back to where it had already been.
So you had a website with no profits… growing at 20% top line… and going up against Google and Meta for the same ad budgets.
Then August came.
On 6 August 2024, Reddit's second quarter numbers landed.
Revenue up 54% to $281.2 million… with daily users up 51% to 91.2 million… and very close to profitability.
So 20% growth had now become 54%…
The company had done a 180 in it’s first 6 months…
And while it would have been easy for me to remain stubborn… I slowly came around to the idea of it being a good stock.
What followed isn't really in dispute….
By this July, Reddit had posted its eighth consecutive quarter of revenue growth above 60%… while operating cash flow passed $1 billion for the first time.
Which brings us to Monday when Reddit joins the S&P 500.
I'm not going to pretend the last two years have been a straight line.
Going into Thursday's announcement the stock was down 31% for the year.
The July results rattled people, because Google's AI summaries now answer the questions that used to send people to Reddit. That risk is real and not resolved.
But the thing that changed my mind wasn't a price move or a headline… It was a growth rate going from 20% to 54% in a business where serving one more user costs almost nothing.
Most investors review a position when the price moves but that's the wrong trigger. A price move tells you what other people currently think. A quarterly report tells you what the business actually did.
So it’s worth seeing when the numbers change… and if they change enough… you’re allowed to change your mind.
Oliver