Social media platform Reddit soared more than 120% from its IPO price following its March 21 debut. Following the successful initial public offering, is Reddit stock a buy in today's stock market?
Last week, Reddit stock hit new lows amid the type of volatile trading often seen in new issues. Shares traded as low as 37.35 before reversing higher. Reddit shares rallied 6.2% Friday, trading around 45 a share. They remains more than 40% off their post-IPO highs.
When Reddit went public on the New York Stock Exchange, shares soared as much as 70% beyond the 34 offering price.
Reddit stock closed that day at 50.31, up 48%. The opening price gave Reddit a market value of about $6.4 billion. The IPO raised $748 million.
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Reddit Stock Fundamental Analysis
Reddit, founded in 2005, operates one of the world's largest and most active online message-board websites. The Reddit platform hosts a stockpile of 1 billion cumulative posts across 100,000 active communities, according to the Reddit IPO filing.
Reddit last year had sales of $804 million, up 21% from 2022. But the company lost about $91 million in 2023 and is yet to turn a profit. Reddit acknowledged in its IPO filing that it was slow to monetize its platform.
"We made a profit in the back half of 2023. We grew revenue three times as fast as costs last year," Reddit Chief Executive Steve Huffman said in a CNBC interview. "I think beyond the community of Reddit, the platform of Reddit, there is actually a very nice, special business here."
Reddit Stock Technical Analysis
Partly due to its short and volatile trading history, Reddit stock shows a weak 50 out of 99 IBD Composite Rating, according to the IBD Stock Checkup. The company's losses are another reason. The Composite Rating helps investors easily measure a stock's fundamental and technical metrics.
The stock so far has not formed a proper base. A short correction could result in an IPO base.
The framework of a good IPO base is simple. The decline from peak to low usually doesn't top 20%, but the most volatile markets have produced declines of up to 50%. The length is often less than five weeks and can be as short as seven days. These two factors alone make IPO bases wayward cousins compared with proper bases, such as the cup with handle and flat base, which need at least five to seven weeks of work.
In an IPO base, the pattern typically starts within 25 days of the stock's first day of trading. Know the important similarities with regular bases. For example, the buy point is drawn by taking the prior high. The price gain on the breakout should be strong.
Be sure to read how to adjust to changing market conditions, with IBD's new exposure levels.
Insiders Sell Reddit Stock
In recent weeks, Reddit CEO Steve Huffman and other top executives and board members disclosed share sales, just a week after the social network had its initial public offering.
Huffman sold 500,000 shares on March 25 at an average $32.30 price, receiving $16.15 million. CFO Vollero Andrew sold 71,765 Reddit shares for $2.318 million. Chief Operating Officer Jennifer Wong sold 514,000 shares for $16.602 million.
Chief Technology Officer Christopher Slowe sold 185,000 shares for $5.975 million. Chief Accounting Officer Michelle Reynolds sold 3,033 RDDT shares for $97,966. Board member David Habiger sold 3,000 shares for $102,000.
All told, that's $41.245 million worth of Reddit shares sold.
Is Reddit Stock A Buy Right Now?
Amid its sharp decline, the stock is already more than 40% off its post-IPO highs.
Reddit stock is not a buy right now. Potential investors should wait for the stock to form a new base before purchasing shares.
For more leading stocks and stocks approaching buy points, check out IBD Stock Lists, like the Stocks Near Buy Zones. To see the current stock market trend, check out IBD's signature daily analysis, The Big Picture.
