Ahead Of Reddit's Market Debut, Munster Expresses Uneasiness Over IPO Pricing: 'Grab The Popcorn, Throw Out The Fundamentals'

Social-media platform Reddit, Inc. RDDT is all set to debut on Wall Street on Thursday, with the initial public offering price of $34 per share. Ahead of the much-awaited debut, tech venture capitalist Gene Munster commented on the pricing and the near-term prospects for investors.

What Happened: “Grab the popcorn , throw out the fundamentals, and enjoy $RDDT’s first day of trading,” said Munster in a post on X. The tech analyst and Deepwater Asset Management Managing Partner took exception to the pricing of the offering. “If it was about fundamentals, the stock would have been priced at the low end of the $31-$34 range.”

The stock would open trading at six times 2024 revenue estimate, a premium over the 3.5 and 5.3 times multiples for Snap and Pinterest, respectively, Munster said. He noted that Snap has 400 million daily average users compared to a more modest 72 million for Reddit. “Both are growing DAUs in the mid teens to low twenties percent range,” he added.

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Also, Reddit has a small AI story, selling training data to Google for $20 million a year, Munster said. This represented less than 5% of the company’s revenue, he added.

“The future of $RDDT is about when it reaches profitability, ad dollar growth and will it live up to its meme stock potential,” Munster said, adding that he expects longs and shorts will battle it out over the next month.

Why It’s Important: Not all share Munster’s muted opinion. Wedbush’s Daniel Ives, a tech bull, called the Reddit IPO as a “potential watershed moment” in an interview with CNBC. He sees the platform making revenue in the billions into the next year.

The timing of the IPO apparently seems right. The Federal Reserve just hinted on Wednesday that it is ready to deliver the rate cuts the market is looking for. With the Fed overhang out of the way and another potentially blowout reporting season round the corner, the market sentiment could remain buoyant in the near- to mid-term, potentially lifting the Reddit shares along with it.

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