With shares trading below the IPO price, analysts raise concerns over Reddit’s monetization strategy and potential as a ‘meme stock’

In a recent evaluation of Reddit’s financial health and market potential, two leading US brokerage firms, Bernstein and Baird, have issued cautious outlooks on the social media giant’s ability to achieve profitability. This scepticism comes in the wake of Reddit’s shares trading below their debut price since the company went public last month.

Despite launching with an IPO price of $34, Reddit’s shares have seen a decrease, currently standing at $45.88, under the debut price of $47. This dip in share value has prompted Bernstein to initiate coverage with an ‘underperform’ rating, setting a price target of $40. The brokerage raised concerns regarding Reddit’s engagement levels, the anonymity of its users, and the prevalence of Not Safe for Work (NSFW) content, suggesting these factors might impede the platform’s advertising revenue potential. Bernstein’s analysis draws comparisons to other social media platforms like Pinterest and Snapchat, which, despite higher user engagement and superior advertising capabilities, have faced challenges in maximizing their financial potential.

Conversely, Baird presented a slightly more optimistic view, offering a ‘neutral’ rating with a price target of $50. Their assessment acknowledges Reddit’s strong user community and the potential for margin improvement. However, this outlook remains cautious amid the broader scepticism surrounding Reddit’s financial strategies and market position.

Reddit, known for its pivotal role in the 2021 meme-stock phenomenon through its “wallstreetbets” forum, has struggled to translate its significant user engagement into stable profitability. The platform’s innovative move to reserve 8% of its IPO shares for its user base and other stakeholders underlines its community-first approach but has yet to quell concerns over its long-term financial viability.

Analysts at Bernstein have labelled Reddit an “institutional meme stock,” cautioning investors about the risks of overly optimistic projections. They emphasize the necessity for Reddit to diversify its revenue streams beyond advertising and to establish sustainable paths to profitability.

As the market awaits further analysis from major Wall Street banks such as Morgan Stanley, Goldman Sachs, JPMorgan, and Bank of America, the pressure mounts on Reddit to articulate and implement a robust monetization strategy that addresses the concerns of investors and analysts alike.

The brokerage firms’ cautious stances reflect broader market uncertainties about investing in social media platforms, particularly those like Reddit, which have historically prioritized user anonymity and open dialogue. As Reddit navigates its post-IPO landscape, the coming months will be critical in determining whether it can overcome these challenges and reassure both its community and investors of its financial future.