The huge pop in initial public offerings in euphoric times is nothing new. Reddit (RDDT) shares popped above $50, above its $34 pricing, earning it a spot in the stock headlines. The one-day return is only a reflection of the over-subscription.
Rivian (RIVN) and Coinbase (COIN) experienced similar pops. Countless other SPACs in 2021 wowed markets with opening gains. Unfortunately, the market is a voting machine in the long term. Reddit needs to develop an operating strategy that monetizes its large user base within the next few quarters. Speculators will quickly lose patience if Reddit posts losses.
Reddit has grown its advertising revenue steadily since 2021. However, losses persisted. To bridge the gap, it signed a licensing deal with Google. Unfortunately, Google’s (GOOG) struggle to catch up in the AI market limits Reddit’s revenue growth potential. Furthermore, users may not want to continue using the site in exchange for being Reddit’s revenue maker.
Bottom Line
Traders should buy RDDT stock on heavy dips and sell it every time it pops. The social networking market is saturated. Snap (SNAP) and Pinterest (PINS) are struggling. Even dating apps like Match (MTCH) and Bumble (BMBL) are struggling to sustain membership subscriptions. As people cut down on paid services and free social networking sites, Reddit stock may head lower in the long run.
