Breakingviews: Reddit float feeds on meme stock craze

The meme stock craze has inflated the values of companies like GameStop and AMC Entertainment. Now Reddit is hoping the same will apply to a platform where the memes are created. Long been in the shadow of Meta Platforms’ Facebook, the social network is planning to go public. To justify seeking a possible valuation of $15 billion, as reported by Reuters, it needs to prove its midlife resurgence won’t become a crisis.

Reddit was founded in 2005, a year after Facebook. Yet in early 2019, a funding round valued it at only $3 billion. While its message boards had devoted fans, they numbered just 36 million daily active users, while Mark Zuckerberg’s network had about 50 times as many.

Meme stocks tend to attract followers through communities like wallstreetbets on Reddit, and the effect works the other way, too. As users increase in number, so does advertising revenue. Reddit said it had $100 million of ad income in the second quarter, about three times more than in the same period the year before.

That’s a $400 million annual run rate. Assuming growth slows slightly but that still doubles next year. At $15 billion, Reddit would be valued at roughly 20 times revenue. That’s about three times the multiple of Meta Platforms, which is far larger but growing at a slower annual clip of around 35%.

Sustaining that kind of gap requires durable, rapid growth. Trading platform Robinhood Markets went public in July, partly fueled by meme stock activity. Its shares are down by almost half from its initial public offering price. GameStop and AMC shares have both slumped around two-thirds from this year’s highs.

Perhaps traders who use Reddit’s message boards have simply turned their attention to other targets. Or maybe once people get a taste for Reddit, they will stick around through both bull and bear markets. The danger, though, is that Reddit’s midlife surge doesn’t last.

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