Jim Cramer on Sunday expressed concerns about the potential impact of a successful Reddit IPO on the current bull market.
What Happened: In a recent CNBC article, Cramer highlighted the unusual nature of Reddit’s IPO, which is expected to be valued at $7 billion, with shares priced between $31 and $34. Despite being in operation for 19 years, Reddit has never turned a profit, relying solely on adjusted EBITDA.
“It's been around for 19 years and it still hasn't produced anything but adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), an alternative measure of financial performance that I will not recognize because it has lost money for too many of us.”
Despite this, the company’s $804 million revenue in 2023 has piqued the interest of institutional investors. The IPO is set to include employee stock sales, potentially attracting buyers from the GameStop era and Robinhood’s options trading community.
Cramer noted that the success or failure of Reddit’s IPO could significantly impact the market’s supply and demand dynamics. He also drew comparisons between Reddit and other companies like Arm Holdings and Instacart, emphasizing the unique challenges Reddit faces due to its unconventional business model.
“I do know this: If Reddit rallies, there will be others to follow. If it doesn't, we could see a continuation of the lack of share supply, which is a function of endless buybacks that drive down the natural supply.”
He also expressed skepticism ...