Reddit’s bet on Redditors
Reddit is the latest company preparing to test the uncertain IPO market, after the unprofitable social media company built around a voracious community of newshounds, cryptocurrency devotees and reality TV fans filed to go public.
The company is seeking a valuation of at least $5 billion, and DealBook sifted through its prospectus to understand its pitch to investors.
Its army of users, its big-name backers, and its bet on artificial intelligence figure prominently. The company sees AI helping it supercharge its ad sales business and generate new licensing revenue. Reddit confirmed on Thursday that it had signed a deal with Google reportedly worth $60 million a year to help the search giant train its artificial intelligence models.
That will likely attract investors, given a boom in AI demand is fueling a global stock market rally. But whether that’s enough to propel Reddit to profitability is a big question hanging over the listing.
Reddit power users will be able to shop at a price usually reserved for institutions. Such an arrangement is unusual — Uber and stock-trading app Robinhood did something similar — and risky (especially if, like Robinhood, the stock sinks later.)
Investors should keep this 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 to achieve a good valuation,” he said.
WallStreetBets is listed as a risk factor. Reddit’s vibrant community of day traders and market watchers rose to prominence in 2021 during the stock meme frenzy that helped send shares of retailer GameStop. The stock’s eventual collapse led to a congressional hearing on the role of social media in fueling rallies, crashes and potential bubbles.
The Reddit community was quick to spot the irony that its members were being treated as a danger and a registration key. “Meanwhile, they are inviting WSB users to participate in its IPO,” one user noted.
Here are other details from her newsletter:
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Its largest shareholders include magazine publishers Advance, Tencent Cloud Europe, Fidelity Management and OpenAI’s Sam Altman, a former Reddit board member. His stake would be worth $435 million if Reddit hits its $5 billion valuation target.
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The main underwriters are Morgan Stanley, Goldman Sachs, JP Morgan and Bank of America.
HERE’S WHAT’S GOING ON
Nvidia’s stock price rises to record highs. The chipmaker added $277 billion in market value on Thursday, the biggest one-day gain for a U.S.-listed company, after reporting earnings. The results helped power rallies in both the S&P 500 and the Nasdaq composite and put Jensen Huang, Nvidia’s chief executive, on the verge of becoming one of the world’s 20 richest people, according to Bloomberg.
The lander of a space launch reaches the moon. The robotic spacecraft Odysseus became the first American vehicle to the Moon since 1972 and the first commercially built to reach it. Shares in Intuitive Machines, which went public last year through a blank check fund, rose 44 percent in premarket trading.
New research has put Meta and child safety under scrutiny. The Wall Street Journal reports that officials at the social media giant have highlighted how subscription tools for Facebook and Instagram are being misused by adults seeking to exploit their own children. And the Times looked at how thousands of parental accounts that feature girls and operate as influencers are followed by dozens of grown men, many of whom admit to being sexually attracted to children.
Do telcos need more regulation?
The hours-long outage of AT&T’s wireless network left tens of thousands of customers without service and cut off 911 and other emergency services. (Verizon and T-Mobile customers also reported problems, though that may be due to AT&T users constantly calling back.)
This mess highlights how, with only three major wireless carriers, the US depends on a small number of companies for a critical utility. While carriers are regulated by the FCC, should they face stricter scrutiny? That question is already being whispered among Washington policymakers.
Telecom companies would strongly push back, arguing that this was a one-off event and that they are financially motivated to avoid shutdowns. The industry also carries heavy weight in Washington: It successfully thwarted an FCC effort in 2008 to require eight hours of backup power for cell sites, following outages caused by Hurricane Katrina.
But the damage from such interruptions can be great. An important lesson from the pandemic is that we rely more than ever on the private businesses that fuel our economy. (At least one restaurant had to turn away breakfast customers because it couldn’t process payments, the Times reported.)
There’s also a national security risk, with some observers worried that a cyber attack is to blame this time. AT&T told ABC News that a software update, not hackers, was to blame.
The Saudis return to Miami
Some of the most powerful bankers and executives in the country descended on Miami Beach this week to meet with Saudi Arabia’s investment chiefs, hoping to tap into the kingdom’s billions.
The packed gathering at the Future Investment Initiative is yet another sign that the fraught politics between Riyadh and Washington are doing little to dampen the appetite for talks. (One attendee called it “crack” for US funders.) Here’s what DealBook’s Lauren Hirsch captured on the scene:
Saudi spending is changing. Yasir Al-Rumayyan, the host and head of Saudi Arabia’s Public Investment Fund, said the sovereign wealth fund plans to reduce its international investment exposure to 20 to 25 percent, from 30 percent. (Instead, the focus is on massive domestic projects, including the 2034 World Cup.) But the amount of money he plans to spend it will grow to $70 billion a year next year, from about $50 billion today.
One major investor told DealBook that, given the fund’s growing domestic focus, it 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 executive Marcelo Claure, private equity mogul Robert Smith and Gwyneth Paltrow (who is raising a venture fund).
Artificial intelligence has been a major topic on and off stage. One executive told DealBook that people didn’t fully appreciate how many layoffs the technology would bring. Another recounted conversations in which other corporate leaders spoke enthusiastically about cost cuts due to artificial intelligence.
The debate on geopolitics has reached the stage, Unlike the Riyadh conference in October, which one attendee called “Disney Land” in spirit.
Mike Pompeo, secretary of state under Trump, has raised concerns about Iran and supported the Abraham Accords, the accords normalizing Israel’s relations with several Arab countries that Pompeo helped broker.
What to watch for in Buffett’s big letter
Saturday is a big day for Berkshire Hathaway: The group 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 examine what he has to say about the economy, investing and more.
But Saturday’s letter has particular significance, in large part because it is the first since the death late last year of Charlie Munger, Buffett’s longtime business partner. Here’s what to look out for.
What will Buffett say about Munger? Long known as Buffett’s alter ego, Munger was happy to be seen as the sarcastic but cheerful second fiddle at Berkshire Hathaway.
Many expect tributes from Buffett. “For a guy who’s not usually very emotional, this is very difficult,” Bill Smead, chairman of Smead Capital Management and a Berkshire investor for decades, told DealBook. Munger, Smead added, was “the rock of his business.”
What are Berkshire’s plans for its ‘elephant gun’ cash hoard? Buffett built the company’s considerable wealth in major acquisitions, using the vast sums of money generated by its insurance business.
That cash pile was more than $157 billion as of the third quarter, as Buffett increasingly favors buying back Berkshire stock instead of big deals. (Berkshire’s last notable acquisition was the litigious purchase of Pilot Travel Centers.) Buffett may write that he now plans to dust off that weapon — but it’s just as likely that he’ll prefer to keep it in the safe.
How will Berkshire prepare for the future? Munger’s death was another reminder that Buffett himself is 93. He has laid out his succession plans, including identifying Greg Abel as the company’s next CEO and Todd Combs and Ted Weschler as head of stock selection.
But some Berkshire investors want to know more. Smead said he would like more information about Combs and Weschler’s performance — what Buffett is doing to “prepare us to trust their.
READING SPEED
Agreements
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The judge overseeing FTX’s bankruptcy case will allow the fallen crypto exchange to sell its shares to private artificial intelligence start-up Anthropic. (Reuters)
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No breakup fees are reportedly owed to Capital One or Discover if regulators block their $35.3 billion transaction. (CNBC)
Policy
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The International Brotherhood of Teamsters gave $45,000 to the Republican Party, the union’s first major donation to the GOP in years. (WaPo)
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A McKinsey-led think tank is said to have made recommendations to Beijing that have been adopted into a “Made in China 2025” policy that has fueled tensions with Washington. (FT)
The best of the rest
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