Hi, Quartz members!
What is this, the 2010s?
This past week’s Reddit IPO and the imminent listing of Truth Social recall a heyday from the previous decade, when social media companies went public amid heated interest. Facebook (now Meta) had its IPO in 2012, Twitter in 2013, and Snapchat in 2017. But since 2019, when Pinterest made it into the New York Stock Exchange, no social media company has listed its shares. Instead, it’s been a story of slumping ad revenues, even as the excitement around tech companies moved to semiconductors and AI.
Reddit is, at best, as “AI adjacent,” as Josh White, a former economist at the Securities and Exchange Commission, told Quartz’s Laura Bratton. Its sales are still driven, in the old-fashioned way, by advertising revenues, although it has discovered means of squeezing those revenues in ways that Snap and X haven’t. The platform has yet to turn a profit, but its losses last year — $91 million —were 43% lower than in 2022. In part, this was preparation for its IPO; Reddit cut costs by laying off workers, and it started charging third-party developers using its application programming interface (API). Earlier this year, Google announced a deal, reportedly worth $60 million a year, to use Reddit’s reams of user-generated content as training data for AI models.
Truth Social, meanwhile, is its own, strange creature: a social media platform born out of Donald Trump’s dudgeon at being banned from Facebook and Twitter due to his posts on those platforms. In the first nine months of 2023, the company generated just $3.38 million in revenue, according to SEC filings—or what Trump’s PAC spent on lawyers in just two weeks in February, according to campaign reports to the Federal Election Committee. Its cash on hand, at the end of September, was merely $1.8 million.
Both these IPOs, then, are vastly different from those of the social media giants in the previous decade. The year Facebook went public, for instance, it demonstrated a raft of new ways to make big money, including more than a billion dollars through advertising. Relying on advertising (assuming Truth Social can even get ads) isn’t sufficient today, though, and one of social media’s most prominent channels of growth is short-form video, the kind that TikTok and Instagram have but Reddit does not. So while Truth Social and Reddit are social media platforms in name, the social media landscape on which they will appear as public companies is a vastly different, and more difficult, one.
BONDED BY MEMES
There’s an odd connection between these two newly or imminently public companies. Truth Social is, in its essence, a meme stock—the kind that first became famous in 2021, when Redditors on WallStreetBets pushed up the value of GameStop and other unexpected stocks. On a Reddit page promoting Digital World Acquisition Corp, the SPAC that plans to take Truth Social public, there’s an image of Trump with the caption: “He’s right! Get more DWAC!” It’s a push to buy stocks with an enthusiasm that is almost unconnected to their fundamentals. Digital World, which is already listed, has been experiencing this enthusiasm of late, in anticipation of its reverse merger with Truth Social. This past week, its stock climbed to $43, implying a valuation of $6 billion.
Not surprisingly, as Bratton writes:
...investors are scared Reddit could get memed by its own users. The company is reserving 8% of its IPO shares for certain Redditors with no lock-up period, which Alpha Cubed Investments CEO Todd Walsh told InvestorPlace has “possible short-term risks associated with it.” There has been talk on WallStreetBets about short-selling Reddit stock on its first day of trading Thursday.
Reddit itself cited Redditors as a risk factor in its SEC filing, going further than Walsh to say WallStreetBets retail traders could create “extreme volatility” of share prices.
TWO BIG NUMBERS
$539 million: What Donald Trump owes by way of penalties as a result of two court judgements against him, including interest that has been accumulating since Feb. 16, the day the second judgement was handed down. At the moment, according to one estimate, Trump may have only around $350 million in cash.
$3.5 billion: Donald Trump’s potential windfall from Truth Social’s IPO. Trump must hold his shares for six months before cashing them in, though—which may be too late for a man who is not only paying judicial penalties but also running for president.
QUOTED
“As many predicted, Reddit’s share price looks to be rocketing up today as one of the most hyped IPOs of the last few years gets underway. Whilst there is a chance this continues due to it being so closely tied to the ‘meme stock’ phenomenon it helped facilitate back in 2021, investors should be very careful. In fact, there’s even plenty of chatter on Reddit itself from users planning to short the stock and cash in on the surrounding buzz.”
— George Sweeney, the financial adviser of the personal finance site Finder, in a statement
ONE 🎺 THING
Listed companies rarely have overt political profiles the way private companies (like Truth Social, as of now) can afford to do. But according to an SEC filing, Truth Social seems determined to preserve its origin story, as well as its political ideology, after it goes public. It will be right there on the Nasdaq when you search for the company: Its ticker symbol will be DJT, the initials of a certain former president.
Thanks for reading! And don’t hesitate to reach out with comments, questions, or topics you want to know more about.
Have a social weekend—or an asocial one, we won’t judge!
— Samanth Subramanian, Weekend Brief editor