Latest / Elon Musk Podcast / Reddit IPO could be great for other Tech companies

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Reddit IPO could be great for other Tech companies · Elon Musk Podcast

• 0:01
  Hey everybody, welcome back to the Elon Musk podcast.
• 0:05
  This is a show where we discuss. The critical.
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  Crossroads the shape. SpaceX.
• 0:09
  Tesla X, The Boring Company and Neuralink and I'm your host Will
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• 0:18
  podcast. Please go to club.
• 0:20
  Elon.supercast.com to find out how there's a link in the show
• 0:26
  notes. So Reddit has recently adjusted
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  CEO Steve Huffman's compensation structure in anticipation of its
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  forthcoming initial public offering or its IPO.
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  Now this is a recalibration of its market value expectations.
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  But previously Huffman's compensation included incentives
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  tied to the company achieving a $25 billion market valuation.
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  Upon going public, these incentives had been revised,
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  reflecting a more conservative outlook on the company's IPO
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  performance. Now in a detailed review of
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  companies documents, it was discovered that in December
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  Reddit retracted specific executive awards contingent upon
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  the company reaching A lofty market capitalization post IPO.
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  This move shows a strategic pivot in the company's approach
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  to execute compensation and valuation aspirations.
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  And despite the adjustment in valuation based incentives,
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  Huffman maintains eligibility for restricted stock units or Rs
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  US contingent on the company sustaining a $5 billion market
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  valuation over a 10 day period. A recent updates to the
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  company's filings suggest that this revised valuation target
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  aligns with Reddit's current market expectations with a
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  potential RSU value estimated at approximately $21 million.
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  Now this recalibration of financial expectations is a
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  significant tempering of ambition for Reddit's IPO.
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  Posited as a notable event in the tech industry's market
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  listings for the year, the company initially filed for an
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  IPO confidentially in 2021, but decided to postpone.
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  Influenced by an environment of increasing interest rates in a
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  downturn in tech stock valuations, the company Reddit
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  is poised to list shares on the New York Stock Exchange
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  imminently. With pricing markedly low to its
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  last private valuation of $10 billion, the strategy shows that
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  the company's pragmatic adjustments to current market
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  conditions in investor sentiment are 100% real.
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  Now there's executive compensation amendments going on
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  here. Now there's concerns about that
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  too. And there's because there's late
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  changes to Huffman's incentives, these adjustments might not
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  adequately motivate the CEO towards substantial post IPO
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  stock value growth. It's a potential issue for any
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  investor's perspective going into this IPO.
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  Now, while Huffman's compensation has been adjusted,
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  some aspects of executive incentives remain tied to
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  ambitious valuation targets. Notably, Huffman and Chief
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  operating Officer Jennifer Wong retain eligibility for stock
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  options and performance awards linked to the company, reaching
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  $25 billion valuation. This is a mix of conservative
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  and aspirational targets within the executive compensation
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  structure. Now Huffman, who's a Co founder
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  of Reddit known by the username Spez, has been pivotal in the
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  company's growth and strategic direction since its operation
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  and his return in 2015. And under his leadership, Reddit
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  has expanded this user base and enhanced its advertising revenue
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  streams, navigating through periods of organizational
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  challenges. And the delay in Reddit's IPO
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  has afforded the company a little bit of additional time to
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  diversify its revenue sources beyond traditional advertising,
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  venturing into E com and also data licensing.
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  And these initiatives had contributed to a revenue
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  increase of over 20% last year totaling $804 million.
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  Although the company has not yet achieved profitability with a
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  reporting net loss of almost $91 million in 2023.
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  Now, this data licensing is a key aspect of Reddit's future.
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  With large language models and AI, they can use all the data
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  from the users, all the posts, all the comments, all the up
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  votes. As data for AP is for AI
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  subsets, and as Reddit prepares for its IPO and a competitive
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  and scrutinized market, its ability to attract investor
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  interest remains a little bit uncertain right now, especially
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  given its lack of profitability and the challenging landscape
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  for digital advertising revenue. Company's performance in this
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  regard will serve as a litmus test for the market's
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  receptiveness to tech AP OS right now.
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  In anticipation of its stock market debut, Reddit has
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  outlined strategic plans to bolster its fledgling
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  advertising sector and diversify revenue streams, including
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  content licensing. The company aims to leverage
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  these initiatives to improve financial health and engage
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  potential investors by offering IPO shares to its user base, a
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  move that could generate considerable buzz and
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  engagement. Despite these growth efforts,
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  potential investors face the prospect of buying into a
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  company that has not. Yet reported.
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  A profitable year And amidst fierce competition for
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  advertising revenues from larger, more established
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  companies. This context raises questions
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  about Reddit's valuation and its appeal to investors seeking
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  substantial and sustainable growth and profitability.
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  This IPO, with a targeted valuation significantly lower
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  than previous estimates, is a cautious approach in a market
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  environment that has growth Increasingly wary of high
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  valuations for unprofitable companies.
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  This pricing decision underscores the company's
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  adjustment to market realities and also investor sentiments.
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  Keep it low, people will invest, and the company's decision to
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  reserve a portion of its IPO shares for its user community
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  introduces a unique element to its public offering, potentially
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  increasing stock volatility due to unpredictable trading
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  behaviors of retail investors. And this approach, while
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  fostering community engagement, introduces additional dynamics
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  that can impact the stock market's performance.
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  Now, I was invited to be part of those IPO shares.
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  I haven't reserved my shares quite yet, but I may be
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  investing in this. And mind you, this is not
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  investment advice from me or from the show or from the
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  company, so just want to let you know that I got in.
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  Hopefully you get it too. Now, Reddit's competitive
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  positioning in the social media and digital advertising
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  marketplaces will be scrutinized within the next week.
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  The company's ability to carve out a substantial niche amid
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  formidable competitors will be critical to its long term
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  success and attractiveness to new investors after the IPO.
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  The market conditions right now, characterized by recent listings
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  that are lacklustre in performance and an uncertain
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  interest rate landscape, pose additional challenges for
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  Reddit's IPO right now. The company's market debut will
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  be closely watched all the way through 2024 and 2025.
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  We've seen it happen before. Tech stocks have been valued so
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  high and within six months completely plummet off the face
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  of the earth. So Reddit's a cool place.
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  I enjoy it. I think it's fun.
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  I don't know if you like it. Maybe it's a a good investment
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  for you. Maybe you can help support the
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  company. But as they navigate the public
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  offerings, the company's performance will offer valuable
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  insights into viability of new tech IPOs in the current
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  economic and market environment. The outcome of this IPO could
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  influence the strategies of other tech companies that are
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  similar to Reddit, considering public listings shaping the
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  trajectory of the IPO market in the near term.
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  Hey, thank you so much for listening today.
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  yourselves and each other and I'll see you tomorrow.