☀️☕️ Seen it, Heard it, RDDT

📝 Focus

• Seen it, Heard it, RDDT

📊 In the Markets

• More new US records; Dell surge pulls up AI; Oil surges; Nikkei <40K; China manufacturing shrinks;

📖 MoneyFitt Explains

• 🎓 IPOs 

💸 Personal Finance Corner

• Retire Early with the FIRE Movement: How Does it Work and is it for You?

📝 Focus

Seen it, Heard it, RDDT

Reddit (RDDT) the self-styled ‘front page of the internet’, is eyeing a valuation of up to $6.5 billion in its upcoming NYSE Initial Public Offering🎓, targeting $31-34 per share according to the WSJ. This would be a third of Snap Inc’s and a tiny fraction of one-year-older Facebook parent Meta’s market cap of $1,280 billion (and perhaps a quarter of what Elon Musk’s X/Twitter is now worth.)

It’s also a significant drop from its $10 billion valuation in its “Series F” private share sale in 2021, though in the “Series E” sale earlier that same year it was valued at $6.4 billion… which may explain the IPO target price. In late 2021, Reddit filed for an IPO, reportedly at a valuation of $15 billion, but the market for new issues and interest in tech dried up as interest rates rose and it was put on hold. This was despite the huge boost its profile and usership had received during the pandemic in “subreddits” like r/Coronavirus and r/WallStreetBets.

Reddit has 73 million daily active users of its engaging forum-style platform but its profitability is not a given, with an accumulated loss of over $700 million (paid from over a billion dollars of private funding) despite “employing” an army of free volunteer moderators. In 2022 and 2023, Reddit generated net losses of $159 million and $91 million. Its main source of revenue has long been digital advertising and it is targeting a global total addressable market of $1.4 trillion (which it is barely scratching). Still, there could be more excitement in licensing its content as source training data for ChatGPT-like Large Language Models (LLMs). A deal with Google worth $60 million a year (7.5% of 2023 revenue) has been announced… though much training may already have been carried out at others.

..... ▷ Reddit was founded as a “social news site” in 2005 by college roommates and bought by publishing giant Condé Nast in 2006 when there were still just four employees and folded into its Wired Digital. 

In 2011, Reddit became an independent subsidiary of Condé Nast's privately-owned parent company, Advance Publications, which still owns 30%.

In October 2014, Reddit raised $50 million in a funding round valuing the company at $500 million. 

It was led by Sam Altman, who is now best-known as the CEO of ChatGPT owner OpenAI but at the time was the president of Silicon Valley’s leading startup incubator Y-Combinator, which Reddit had gone through. Altman still has 9%. (See above.)

That round included top-tier VC leading lights Marc Andreessen and Peter Thiel, “Super Angel” Ron Conway and others like Snoop Dogg, and Jared Leto. 

..... ▷ By 2017, Reddit had a $1.8 billion valuation when it raised $200 million. In 2019, it raised a further $300 million led by China’s leading tech and gaming platform Tencent at a valuation of $3 billion. 

And in 2021, it raised cash twice, according to Crunchbase, $368 million at $6.4 billion and later $410 million at $10 billion (led by Fidelity) with a view to an IPO the following year at $15 billion.

..... ▷ Anyone remember Digg? Before Reddit, Digg was the dominant social news site where users could upvote or downvote articles. 

It had immense influence in the mid-2000s… when Digg users linked to a website, it could cause servers to crash due to the influx of traffic.

But with a clunky interface and rife up/down voting manipulation, newcomer Reddit rose in popularity by offering a more user-friendly platform, fostering a strong sense of community and embracing diverse content. 

Then, in 2010, Facebook introduced the Like button and Google changed its algos, sending Digg’s traffic off a cliff. 

This led to a massive redesign which was hated by users as it fundamentally altered Digg’s concept by promising publishers traffic by having users upload content to Digg pages. Users felt misled and Digg’s loyal community abandoned the platform.

Maybe a cautionary tale for Digg’s “ social news” successor, Reddit, which last year faced a weeks-long strike affecting 8,000 subreddits with hundreds of millions of subscribers. 

The revolt was about the decision to begin charging outside companies for API access as many of Reddit’s army of unpaid moderators (who make Reddit work on a day-to-day basis by deleting spam, enforcing rules, and generally corralling the users) use such tools to keep their subreddits running. 

📊 In the Markets

On Friday, the S&P 500 and Nasdaq again hit record highs as tech stocks surged on continued AI optimism and declining Treasury yields. The Nasdaq notched its second consecutive closing record and topped its previous intraday peak, led by AI-related firms like Nvidia and Meta Platforms. 

Dell Technologies, which makes high-end servers utilising Nvidia processors, provided a bullish outlook on a surge in orders for AI-optimised servers, with a revenue and profit forecast way above Wall Street estimates. This led to a 32% leap in its share price to a record high. Super Micro Computer, which also sells Nvidia chip-powered servers, saw a 4.5% jump.

Nvidia reached a market value of over $2 trillion for the first time, while AMD also soared to a record high. After more than tripling last year, Nvidia's now up 66% year-to-date, taking its stock market value above both Amazon and Alphabet.

Chipmakers with AI exposure, including Broadcom and Marvell Technology, also surged to record highs, pushing the SOX, the PHLX chip index, up 4.3% to a new record.

US Crude oil futures surged to $80 a barrel on Friday, the highest since November, amid tightening market signs ahead of an OPEC+ decision on production cuts over the weekend. The West Texas Intermediate contract for April settled at $79.97, while May Brent futures reached $83.94.

And entirely as expected, OPEC+ did indeed extend the voluntary oil production cut of 2.2 million barrels per day since January for three more months now to June to boost prices amid geopolitical tensions. The focus now shifts to OPEC+ ministers' semi-annual meeting on June 1.

Japan’s Nikkei 225 led gains in Asian stocks, closing just shy of the 40,000 level, up 1.9% at 39,910.82. The broader Topix index also saw a significant 1.3% uplift for a 1.8% increase for the week. 

However, Japan’s February factory activity contracted at its fastest rate in over three years, with the au Jibun Bank’s flash Japan manufacturing purchasing managers’ index falling to 47.2 from January’s 48.0, indicating continued contraction in private sector business activity. This marked the ninth consecutive month of decline and the sharpest contraction since August 2020.

Meanwhile, in China, official figures revealed another month of manufacturing activity contraction, with the manufacturing PMI dropping to 49.1 in February from 49.2 in January, in line with poll estimates. However, the private sector-focused Caixin/S&P Global manufacturing PMI showed a slight improvement, edging up to 50.9 from 50.8 in the previous month, indicating expansion. 

China's manufacturing PMI has contracted for five consecutive months, an unwelcome economic weakness ahead of the Chinese People’s Consultative Conference, the rubber-stamp session to set targets for economic growth, fiscal stimulus and military spending. The annual “Two Sessions” is due to take place today and tomorrow. 

With declining growth, waning confidence, deflation, a real estate crisis and volatile financial markets, policymakers are being urged to act decisively.

China’s CSI 300 rose 0.6% on the day, up 1.4% for the week.

📖 MoneyFitt Explains

🎓 IPOs - Initial Public Offerings

An IPO is when a privately owned company sells new shares to the public and institutional investors (including mutual or hedge funds, pensions, banks, insurance companies, trusts and sovereign wealth funds. Main ones in “the book” are called "cornerstone" or "anchor" investors.)

Shares need to fulfil certain disclosure and other requirements to get "listed" on a stock exchange where they can be traded. To help the company through this process, an IPO is "underwritten" by investment banks, who also find buyers for the shares and help set the price.

The main reason for having an IPO is for the company to raise money by selling shares in itself so it can grow its business. Almost as important, it's a way for existing shareholders and management to sell their shares and receive money themselves. A third reason is to have something tradeable to incentivise staff with.

IPO prices are usually set high enough to raise enough money but low enough for the shares to go up "in the aftermarket" on buying by investors who didn't get as many as they originally wanted. This is reflected in the subscription multiple (the number of shares desired divided by the number on offer.)

Everyone likes IPOs shooting up, especially management, the banks and IPO investors, (though in a way it means it was underpriced.) There's no guarantee that it will, but banks do sometimes legally "support" the share price in the market afterwards.