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Can Redditors Revive the IPO Market?

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Reddit is the latest company to test the uncertain IPO market, after the unprofitable social media company was built around an enthusiastic community of newshounds, cryptocurrency enthusiasts and reality TV fans who filed to go public.

The company is aiming for a valuation of at least $5 billion and DealBook has been going through its prospectus to determine its pitch to investors.

The army of users, major financiers and the focus on artificial intelligence prominently present. The company sees AI helping it boost its ad sales business and generate new licensing revenue. Reddit confirmed yesterday that it had signed a deal with Google that is reportedly worth it $60 million per year to help the search giant train its AI models.

That’s likely to appeal to investors, given the huge demand for AI fueling a global stock market rally. But whether that’s enough to make Reddit profitable is a big question hanging over the list.

Reddit power users are allowed to buy in at a price normally reserved for institutions. Such an arrangement is unusual – Uber and the stock trading app Robinhood did something similar – and risky (especially if, like Robinhood, the stock later plummets.)

Investors should keep that in mind, Joachim Klement, investment strategist at Liberum, told DealBook. “My view on this IPO is that Reddit is struggling to make a profit and will face a challenge in getting a good valuation,” he said.

WallStreetBets is listed as a risk factor. The vibrant Reddit community of day traders and market watchers shot to fame in 2021 during the meme stock frenzy that sent shares of retailer GameStop on a wild ride. The eventual stock price collapse led to a congressional hearing on the role of social media in fueling rallies, crashes and potential bubbles.

The Reddit community quickly saw the irony of its members being treated as a liability And a key to the list. “In the meantime, they invite WSB users to participate in the IPO,” one user commented.

Here are other details from the prospectus:

  • Its largest shareholders include Advance Magazine Publishers, Tencent Cloud Europe, Fidelity Management and Sam Altman of OpenAI, formerly a board member of Reddit. His bet would be worth $435 million if Reddit hits its $5 billion valuation target.

  • The main underwriters are Morgan Stanley, Goldman Sachs, JP Morgan and Bank of America.

The price rise of Nvidia shares sets a record. The chipmaker added $277 billion in market value yesterday, the biggest single-day gain ever for a US-listed company, after its huge earnings report. The results helped boost both the S&P 500 and Nasdaq indexes and have Nvidia CEO Jensen Huang on the verge of one of the twenty richest people in the worldaccording to Bloomberg.

A space travel start-up’s lander reaches the moon. The Odysseus robotic spacecraft became the first American vehicle on the moon since 1972 and the first commercially produced vehicle to arrive there. Shares of Intuitive Machines, which went public last year through a blank check fund, rose 44 percent in premarket trading.

New studies are examining the safety of Meta and children. The Wall Street Journal reports that officials from the social media giant have detailed how subscription tools for Facebook and Instagram are being abused by adults try to exploit their own children. And The Times investigated how thousands of parent-run accounts featuring girls and influencer-run businesses are followed by dozens of adult men, many of whom admit to being sexually attracted to children.

The hours-long collapse of AT&T’s wireless network left tens of thousands of customers without service and shut down 911 and other emergency services. (Verizon and T-Mobile customers also reported issues, though that may have been related to AT&T users’ constant redialing.)

That chaos underscores how the U.S., with just three major wireless carriers, depends on a small number of companies for a crucial utility. Even though the providers are regulated by the FCC, should they be more closely monitored? That question is already being whispered among policymakers in Washington.

Telecom companies would push back forcefully, arguing that this was a one-time event and that they are economically incentivized to avoid closures. The industry also has a lot of influence in Washington: with success rejected an offer from the FCC eight hours of backup power was needed for cell sites in 2008, following outages caused by Hurricane Katrina.

But the damage caused by such disruptions can be extensive. A key lesson from the pandemic is that we are more dependent than ever on the private companies that power our economy. (At least one restaurant had to turn away breakfast customers because it couldn’t process payments, The Times reported.)

There is also a threat to national security, with some observers concerned whether a cyber attack could be to blame this time. AT&T told ABC News a software updateand not hackers, were the culprit.

Some of the country’s most powerful bankers and executives descended on Miami Beach this week to meet with Saudi Arabia’s investment heads, hoping to tap into the kingdom’s billions.

The packed meeting at the Future Investment Initiative is a further sign that the fraught politics between Riyadh and Washington are doing little to dampen the willingness to talk about deals. (One participant called it “crack” for US financiers.) Here’s what DealBook’s Lauren Hirsch noted on the spot:

Saudi spending is changing. Yasir Al-Rumayyan, host and head of the Saudi Public Investment Fund, said the sovereign wealth fund plans to reduce its international investment exposure from 30 to 20 to 25 percent. (Its focus is instead on major domestic projects, including the 2034 World Cup.) But the amount of money it plans to spend will grow to $70 billion a year next year, up from about $50 billion today.

One major investor told DealBook that given the fund’s increasing domestic focus, he planned to do more deals in the kingdom.

A-list guests from the worlds of money and politics mingled on a hotel patio. Jared Kushner, Donald Trump’s son-in-law, held court at a corner table, while Steven Mnuchin, Trump’s Treasury Secretary, sat at a table with Jenny Johnson, the CEO of Franklin Templeton. Also there were Michael Dell, former SoftBank CEO Marcelo Claure, private equity magnate Robert Smith and Gwyneth Paltrow (who raising a venture fund.)

Artificial intelligence was an important topic both on and off stage. One executive told DealBook that people didn’t fully realize how many redundancies the technology will bring. Another story featured conversations in which other business leaders spoke enthusiastically about AI-driven cost savings.

Talking about geopolitics came to the stage, unlike the Riyadh conference in October, which one attendee referred to in spirit as “Disney Land.”

Mike Pompeo, a secretary of state under Trump, expressed concerns about Iran and praised the Abraham Accords, the deals that normalized Israeli relations with several Arab countries and that Pompeo helped broker.

Tomorrow is a big day for Berkshire Hathaway: the conglomerate will release both its annual report and Warren Buffett’s latest letter to investors. As they have done for decades, followers of the Oracle of Omaha will delve into what he has to say about the economy, investments and more.

But tomorrow’s letter has special significance, largely because it is the first since the death late last year of Charlie Munger, Buffett’s longtime business partner. Here you can read what you should pay attention to.

What will Buffett say about Munger? Long known as Buffett’s alter ego, Munger was liked as the sarcastic but sharp-witted second fiddle at Berkshire Hathaway.

Many expect tributes from Buffett. “For someone who is not normally very emotional, this is very difficult,” Bill Smead, chairman of Smead Capital Management and a decades-long investor in Berkshire, told DealBook. Munger, Smead added, was “his business rock.”

What are Berkshire’s plans for its ‘elephant gun’ money supply? Buffett built the company’s considerable wealth through major acquisitions, leveraging the vast amounts of cash generated by its insurance operations.

That pile of cash amounted to more than $157 billion as of the third quarter, as Buffett increasingly prefers buying back Berkshire shares to closing major deals. (Berkshire’s last major acquisition was the purchase ruined by lawsuits from Pilot Travel Centers.) Buffett may write that he now plans to dust off that gun — but it’s just as likely that he’d prefer to keep it in the safe.

How will Berkshire prepare for the future? Munger’s passing was another reminder that Buffett himself is 93. He has outlined his succession plans, which include identifying Greg Abel as the company’s next CEO and Todd Combs and Ted Weschler as the key stock pickers.

But some Berkshire investors want to know more. Smead said he would like more information on how Combs and Weschler performed — what Buffett is doing to “prepare us for the trust them.

Offers

  • The judge overseeing FTX’s bankruptcy case will allow the fallen crypto exchange sell his shares in Anthropic, the private AI startup. (Reuters)

  • There is reportedly no termination compensation owed to Capital One or Discover if regulators block their $35.3 billion transaction. (CNBC)

Policy

  • The International Brotherhood of Teamsters gave $45,000 to the Republican Party, the union’s first major donation to the Republican Party in years. (WaPo)

  • a A McKinsey-led think tank It is said to have made recommendations to Beijing that were adopted in a ‘Made in China 2025’ policy that has fueled tensions with Washington. (FT)

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