How Reddit's IPO Will Impact the Market

1. 0:00 – 1:25

   Reddit IPO

   1. KSKara Swisher0:00

      Reddit has officially gone public. Uh, the social media company made its debut on the New York Stock Exchange on Thursday with a share price of $34, the high end of the targeted, uh, range. Its share price puts Reddit's value at around 6.4 billion, which seems teeny-tiny these days, which is what they were aiming for, but, uh, below the $10 billion valuation from a private fundraising round in 2021. We're recording this as trading is getting underway. H- how do you think it'll go?

   2. SGScott Galloway0:28

      Well, uh, I voted with my wallet. I'm trying to get shares here. So, look, this is... If, if JP Morgan and Goldman Sachs, uh, uh, and Morgan Stanley could do this, this is what they would do. They themselves would find $100 million each and buy into this, buy into the, uh, first trades and try and send the stock soaring. Because the IPO market has been in a deep thaw for two years. It's been some of the slowest two-year period, 24-month period in several decades. Yesterday, the, the landing lights got lit by, um, this company, this company Astera. If a popular, not a popular, but a well-known consumer internet brand, Reddit, gets a big pop, we're back in business, baby. And the amount of money that flows from the IPO market, in terms of downstream, secondary, green shoe, follow on wealth management, all the shit, they create so much fees.

2. 1:25 – 5:37

   Reddits business

   1. SGScott Galloway1:25

   2. KSKara Swisher1:25

      Let me push back here. This is an advertising company. This is not an AI company, first of all-

   3. SGScott Galloway1:29

      Agreed.

   4. KSKara Swisher1:29

      ... which is a little different. Um, just for people to be aware, Reddit sold... I mean, it's almost fully an advertising company, completely. $800 million in advertising. It's very small. It's like a Snapchat kind of situation. Um, I think Snapchat's a lot bigger, actually. I think double even, I'm pretty sure. Um, Reddit sold, just for people that are aware, uh, just above 15 million shares in the offering, and existing shareholders sold another close to seven million shares, getting some, taking some money off the table, I think, right away. Um, and, uh, you were talking about Astera, A-S-T-E-R-A, for people who, who don't know. Um, but it's a dry spell. Um, uh, there has been a dry spell in these things. Uh, uh, just so people are aware, Reddit's revenue was $804 million last year. Uh, it rose from $667 million, but it lost 90, uh, million dollars in... almost $91 million, where... And the year before, it lost $159 million. Um, it's trying to get into other businesses, like data licensing. Um, it- it get, it got a r- just around $66 million from Google arou- in, uh, data licensing deals, um, to train these AI models. It's, it, it want, it got, uh, m- a query from the Federal Trade Commission for this. It's also, Sam told m- um, excuse me, Sam, um, Steve told me he was, uh, you know, they're looking at commerce and other businesses besides advertising. Um, uh, and they think they have a good advertising story 'cause it's safer because of contextual advertising, and also because you can reach individuals. This is decentralized content moderation and decentralized groups. Um, I, I don't know. I, I, I think it's an advertising business. So, I think I, I... And also, the last thing is they're famous for WallStreetBets, uh, which... And, and in WallStreetBets, they were betting they were gonna short the stock. So, there's a meme possibility here too, that they will, that there's, that the people that are on the site will try to work against it. And then last thing, and moderators, some of the mods are getting shares. Um, and not all of them liked it necessarily, 'cause this is a very, um, noisy, noisy company among the people who run it. It's run by people who are volunteers and stuff. Anyway, it's a lot happening here. I mean, you still think 'cause it's an ad business, I mean, and you know the ad business, that it'll, it'll be, it'll, it'll mean as much.

   5. SGScott Galloway3:55

      So, there's Reddit, the specific company, its performance, and how-

   6. KSKara Swisher3:59

      Mm-hmm.

   7. SGScott Galloway3:59

      ... how it performs in the market. And then there's a larger question about what it's, what it means, the IPO this morning of Reddit-

   8. KSKara Swisher4:05

      Mm-hmm.

   9. SGScott Galloway4:06

      ... to the larger market. So, let's talk about Reddit. You're right, it's an ad business. They basically have a series of boards and Redditors that manage those boards. They have unbelievable traffic, but they haven't really figured out, they don't have the ad stack and the business model to really monetize it the way other companies have run it. It's an $800 million business, not a big business. It grew 20% last year. It's still losing money. It's going out, or it's priced at about eight times revenues, which draws sharp relief between, as you pointed out, an ad-based business and an AI business. The question surrounding Reddit is the following. They have the worst monetization of any, of any platform that gets this kinda traffic. I think Meta gets something like 30 to 50 times the monetization per person on the platform as Reddit. Now, it's like my dad told me. I remember my dad telling me this when he was trying to test whether I'd be a good salesman. He's like, "A salesman goes over to Africa." And this marks the time, this was the '70s. And he comes back and one salesman goes... He's a shoe salesman. One salesman comes back and says, "Terrible market for us. Nobody wears shoes here." Another salesman goes over and comes back and says, "This is amazing. Nobody has shoes." So, the question is, is Reddit... Is the fact that they have the worst monetization, given the traffic, an, uh, an incredible opportunity if they figure that out? Or is it a company that's never been able to figure it out and is gonna go nowhere? That's the question. But at six and a half billion dollars-

   10. KSKara Swisher5:29

       Yeah.

   11. SGScott Galloway5:30

       ... a lot of people are about to take, I believe, that bet. Now, the bigger issue here is what it means for the market.

   12. KSKara Swisher5:36

       Would you

3. 5:37 – 7:08

   Is Reddit undervalued

   1. KSKara Swisher5:37

      buy Reddit? I don't buy into these things. So, would you buy Reddit?

   2. SGScott Galloway5:39

      I'm trying to, yeah. Uh, yeah.

   3. KSKara Swisher5:42

      Oh, you are? Oh, you are.

   4. SGScott Galloway5:42

      Yeah, I'm bu-

   5. KSKara Swisher5:42

      I'm sorry, that's correct. So, 'cause you think-

   6. SGScott Galloway5:44

      Yeah.

   7. KSKara Swisher5:44

      ... that it's undervalued in that regard?

   8. SGScott Galloway5:47

      (laughs)

   9. KSKara Swisher5:47

      Um, uh, 'cause I don't think people think that the, the, the data stuff is gonna be the big moneymaker s- uh, at all, the, the data stuff. And no one... The commerce stuff is absolutely nascent, and, like, I sell more T-shirts than they do, that kind of thing. Um, so you think the $34 price share is what?

   10. SGScott Galloway6:05

       Uh, oh, no, no, no.

   11. KSKara Swisher6:06

       Too much? Too little?

   12. SGScott Galloway6:07

       Uh, I, I'm buying for two reasons.Um-

   13. KSKara Swisher6:10

       Okay.

   14. SGScott Galloway6:11

       ... uh, the first is, this could be... I think this, I think there is a ton of pent-up demand. In 2021, um, there were, um, uh, 397 IPOs. And of those 397 IPOs, because a ton of them were SPACs and shit and caught up in the mania- mania, eight out of 10 of them, 82% of them, are trading below their IPO price, and the market feels burned and jilted. So as a result, in 2023, there were only, um, 108 IPOs. Uh, the reason I'm investing in this is two reasons. One, um, I think that essentially, uh, it's a global brand. And two, it's the most trafficked site in America that isn't owned by Alphabet, and it's trading all of this set against a- a valuation of six and a half billion dollars. There are real issues, as you pointed out, with this company. They have no- e- e- they have not yet figured out a way to monetize anything resembling the fire hose of traffic they have. Right? I-

4. 7:08 – 8:29

   How big is Reddit

   1. SGScott Galloway7:08

   2. KSKara Swisher7:08

      Mm-hmm. It's not that big. 500 million users, 76... He- he was focused in on the daily users, 76 million, and that they have this dispersed group of people, so advertisers could reach sk- if you're in the skiing area. And it's not ugly. They've really cleaned it up quite a bit compared to a Twitter where everyone's in the same pile of crap, um, you know, everybody's in the same feed or whatever. But go ahead, sorry.

   3. SGScott Galloway7:33

      But this- I mean, there- there's a- (sighs) there's a lot to not like about this company. They haven't figured out monetization. When I go on the site, it feels like l- you know, Lycos or AltaVista called and wants their UI back. I don't think it's very elegantly done. But for six and a half billion dollars, a company that is... If you type in most trafficked sites in the US, it goes- it goes Google, it goes YouTube, and then it's Reddit. And so- and I- and also, I think there's so much money on the sidelines hoping to get back into the IPO market, but if Reddit comes out at a s- a healthy pop, we're off to the races again, Kara. You're gonna see a ton of companies file, and the Green Glens or- and the animal spirits are gonna get going again. So Reddit is actually... Reddit is more important to investment banks and the IPO ecosystem and the broader market, I would argue, than almost any company in a while. This IPO has much bigger meaning and ramifications than just what shareholders of Reddit are gonna garner.

5. 8:29 – 10:55

   Whats next for Reddit

   1. KSKara Swisher8:29

      In the midst of this, of- of all these things that are happening, uh, two things interesting. Uh, one of the big winners could be Condé Nast's parent company, Advance, whose stake in Reddit w- will be worth around 1.4 billion. I don't think they can sell though. Maybe they're selling a little bit of shares in the- in the IP. They might be among those sellers. Um, that's- they made a $10 million investment for Condé Nast to buy Reddit in 20- uh, 2006, and then they spun it out again. So (laughs) you know, it- this company got spun- bought in and then spun out. Uh, it's been through a lot in the- in the many years. Second thing, um, Reddit had to reveal the FTC is conducting an inquiry tied to the company's deals to, uh, to license data, as we said, and then also, uh, Reddit, along with YouTube and Meta, also has been ordered by a New York State judge to face a lawsuit tied to that 2022 racially motivated shooting in Buffalo. The lawsuit claims the platform's helped radicalize the shooter and prepare him for an attack. Of course, the Supreme Court found differently when it was a Google case, so I'm not sure this will go anywhere. Um, so there's all those things hanging around. Um, so what are you- is- is it- will this set it off or will something else set off the IPO market? 'Cause Instacart didn't do very well, others didn't do very well. You think this will set it off?

   2. SGScott Galloway9:41

      Like I said, the table's been set with Astera Labs up 72%.

   3. KSKara Swisher9:45

      Mm-hmm.

   4. SGScott Galloway9:45

      If a big consumer internet brand, Reddit, comes out at a healthy pop, markets- the IPO market is back in business. (record scratching) Uh, Scott Galloway here, coming in with an update. Uh, since we've taped, Reddit has begun trading. The stock opened at 47 buck, and at its peak, the company had a market cap of, get this, 11 billion, and, uh, also ended up closing up, I think, around 45 or 50%. I would argue that, um, essentially, this is enormous for the markets, that this has turned the IPO market from sort of like blinking yellow to- to, you know, a- illumined green. The IPO market, the animal spirits, I think, are back. In sum, Astera Labs kind of illuminated the runway yesterday, and this big consumer internet brand, Reddit, landed the plane with a huge pop today. Uh, this is big for the markets. It's actually- the- the bigger part of the news here isn't a consumer media company, uh, up, whatever it was, 45 or 50%, the bigger story here is the IPO market, I believe, is back. The animal spirits are back. John Travolta is on the dance floor.

Episode duration: 10:56