this post was submitted on 24 Feb 2024
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Reddit has never been profitable so I’d say that’s the biggest risk.
Wall Street doesn't care about profitability, they only care about growth.
They should be worried about how much of their 'growth' is bots.
They care now that interest rates have increased. That’s kinda what the whole “enshitification” and layoffs are all about. Tech companies desperately scrambling to make a profit.
Profitability is beginning to matter more. 5.25% Federal Funds rate, and a Prime-Rate of like 8.5%, means that it costs 8.5% for businesses to borrow money now.
So that means that if a business borrows at 8.5%, they must grow by 8.5% to just stay even with interest rates and the cost of borrowing money. Because a lot of these "growth" strategies involve losing money for years-and-years, you have to factor in the costs of those losses as well.
When Federal Funds Rate was 0.25%, no one cared about the cost of money or the cost of loans. Today, Wall Street cares, and you can see it in all the stock movements. The less-profitable companies have been getting hammered.
Nope that was true when interest rates were low.
Now they care about the bottom line.
It can change again.
It's only not profitable because the CEO and CFO are taking such massive salaries, $193M and $93M, respectively.
They took $286M and the company lost $90M. They could take $90M less - still taking almost $200M - and Reddit would be profitable. That alone should tell investors that this is a bad investment.
That's not exactly correct. The CEO & CFO are paid a salary way less, like I think around the $300k range. The $285M is in stock options, which only has a value based on the price of the stock. They could hand them back to the company but they would be of no value to the company until the IPO.
I'm confused how they could be paid in stock options when they aren't traded. Do they just use made up numbers until this point and get "paid" in exposurebucks?
Even if a stock isn't publicly traded it still has value. It's just that retail investors can't buy or sell it. Basically, it's owning a part of the company. So they now technically own whatever percentage (number of shares/total number shares available). Unfortunately, it doesn't equate to a monetary value to the company itself just show's the company who owns what percentage of it.
So well the company is "valued" at what it is now, they are only saying that if they were to sell all those shares in the open market that would be what it's worth. Now in the business world the CEO & CFO will be able to go get loans based on that value (putting that stock as colaterial) but it's basically all that they'd be able to get right now.
Basically, yes. It's like paper money the company can print more of and dilute the value of.
Plus $800k in performance based bonuses.
Right, but that's nowhere near the money to be able to make the company break even.
In risk management terms, lack of profit isn’t a risk. That’s more so an outcome.