IPO expert warns Reddit stock may soon reflect fundamentals, ‘rather than hype’
Reddit Inc's (NYSE:RDDT) stock price fell over 7% Friday, a day after the social media platform made its long-awaited market debut.
Market participants have closely monitored the company's share sale to gauge investor interest in new stock offerings after a prolonged market freeze. According to IPO experts, the stock's performance in the coming weeks could significantly impact the IPO plans of other loss-making tech startups.
On its first day trading on the New York Stock Exchange, RDDT shares climbed 48%. While the social media platform is still loss-making, its performance on the first day of trading was positive, closing at over $50 per share.
Reddit’s IPO was priced at the top of its targeted range of $31 to $34 per share, with the company raising $748 million at a $6.4 billion valuation. 22 million shares of Reddit were sold by the company, and existing shareholders at $34 each.
Despite the positive first day, Reddit users themselves are still skeptical due to concerns about its lack of profitability and its performance over the long term.
However, David Kaufman, Partner and Co-Chair of Thompson Coburn’s Corporate and Securities Practice Group, told Investing.com that “although it seems like Reddit lacks a proven profit business model, its brand name may prove to [be] a winner in the stock market game.”
“Together with a lack of other exciting IPOs, or any IPOs at all, consumers may flock to grab onto this name brand in an effort to get some outsize one or two-day returns, as evidenced by the one-day pop,” Kaufman, a legal expert, added.
Kaufman also said the fact that Reddit disclosed “some sort of AI deal with Google” in its prospectus doesn’t hurt due to it being perceived as some sort of “AI- play.”
Even so, “as
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