Wall Street’s bet on Reddit

Hey Superheroes,

Did you know the S&P 500 recorded 17 closing highs in the first 50 trading days of 2024? Only three other years have recorded more than that since 1953. It’s now up over 10% this year… we haven’t even gotten through the first quarter yet. 

But perhaps it’s no surprise the market is bullish. Despite U.S. inflation ticking up last month, the Fed kept rates unchanged at its latest meeting – even citing a potential three rate cuts by the end of 2024. Hmm… do you think the RBA will take a hint? 

Either way, let’s get on to it!

Reddit finally hits the U.S. stock market

Three years on the drawing board, 10 amendments to its investor pitch and several speculative headlines later, it finally made it.

Reddit (NYSE:RDDT) successfully debuted on the NYSE last night. And that’s not all – its shares closed almost 50% higher than its IPO price, bringing its market cap to a solid US$8 billion on its first day.

🕒 Better late than never

Reddit offered 22 million shares in its IPO – roughly an 18% stake in the company. 

It initially quoted a price range of US$31 to US$34 per share before later confirming the entire batch was issued at the top end, after its IPO was said to be between four to five times oversubscribed.

Reddit’s IPO marks the first major social media platform to go public since Pinterest in 2019. It was also rather unique in that Reddit reserved 8% of those 22 million shares to its most active “Redditors” and some close contacts.

👴🏻 Older than Instagram

For those living under a rock, Reddit is a 19-year old social media platform known for hosting over 100,000 forums it lovingly calls “subreddits.” 

It made headlines in 2021 when retail investors in its “WallStreetBets” subreddit contributed to the meteoric share price jump of then-struggling Gamestop. Reddit first filed for an IPO later that year… but ultimately did a u-turn amidst weakening market conditions.

🤔 Investment comes with risks

While Reddit may be popping some champagne today, there are a few things to note.

Firstly, there’s the fact that Reddit… has not recorded a single year of profit in the last two decades. 

There are questions as to how it can start generating profits. It may have seen an impressive 73.1 million daily active users last quarter, but this is at an average revenue per user of US$3.42 – down from US$3.49 the year before. Some also expect its user growth to stall in the coming years.

However there’s excitement around Reddit’s recently signed deal with Google. It’s a deal that signals Reddit’s potential to jump aboard the AI train, with the added icing of potentially bringing in US$60 million in revenues a year. 

Either way, Reddit is now available to trade on Superhero!

Apple hit with a lawsuit from the U.S. Justice Department

There’s arguably nothing worse than hearing that… the government is suing you.

Apple shares dropped 4% overnight following the news. Apple’s already lost about US$235 billion (or over 7%) in market cap this year.

📱 The ‘i’ in iPhone

The lawsuit alleges that Apple uses its control of the iPhone to stifle innovation and extract more money from its users, developers and merchants. It also states that Apple has been able to maintain its power not because of a superior product, but because of “unlawful exclusionary behaviour.” Oof, those are big words.

If the Department of Justice is successful, it could make Apple split up or change how it does business, like its contracts or operations.

Unsurprisingly, Apple denies the allegations and aims to defend itself in court. 

🔦  Some other things we’re shining the Spotlight on:

• CENTRAL BANKS HIT THE BRAKES: Both the RBA and the Fed kept their respective interest rates on hold this week. While the U.S. saw inflation tick up slightly last month, the Fed notes that the short term increase does not change the “underlying story” that U.S. inflation is now on its way down.
• RARE EARTH’S INVESTOR: The U.S. Government showed its interest in Australia’s Rare Earths industry this week after it provided (non-binding) pledges to lend a further A$1.28B in loans to both Meteoric Resources (ASX:MEI) and Australian Strategic Materials (ASX:ASM). 
• DABBLED IN DUBBER’S WALLET?: ASIC has banned Dubber’s CEO (ASX:DUB) from leaving the country after suspicions in respect to the misuse of A$26.6M of Dubber’s funds. Dubber has been on a voluntary trading halt since February 27 after it found it was unable to access its funds.

That’s all for this week’s Spotlight! Keep up to date with market news and insights by following us on Instagram, @superheroau!