Reddit Stock Forecast: RDDT closes up 48% on first day of trading
- Reddit spikes as much as 70% on NYSE on Thursday.
- RDDT stock started off at $34 per share before trading got underway.
- The initial Reddit market cap was $6.4 billion, but meme stock status could aid bulls.
- ALAB stock IPO on Wednesday saw a 72% gain.
Reddit (RDDT) stock closed up 48.4% on Thursday. Its IPO only began trading at $50.44 at 13:15 EST. The stock gained as much as 70% for an intraday high of $57.78 early in the session.
Reddit has finally come to Wall Street after nearly two decades of operations. Founded in 2005 by University of Virginia roommates Alexis Ohanian and Steve Huffman, Reddit is ranked as one of the top 20 most popular sites on the internet globally. The social media site was priced at $34 a share or $6.4 billion in market capitalization before trading began.
The timing is good for Reddit stock as US stock exchanges are rising following remarks on Wednesday by Federal Reserve (Fed) Chair Jerome Powell, who said that the central bank would soon begin tapering its “quantitative tightening” program. The policy has seen the Fed reduce its balance sheet by $1.4 trillion thus far, and tapering that decline would theoretically make more room for investments in equities.
The Dow Jones has gained 0.7%, while the NASDAQ Composite advances 0.2% at the time of writing.
Reddit stock news: The IPO is here
Another reason to be hopeful for the Reddit IPO is that Astera Labs (ALAB), a pure play on the hype surrounding artificial intelligence semiconductors, exploded 72% on its IPO on Wednesday.
Could Reddit follow suit? Possibly. The company has been priced at the top end of its range, but its $6.4 billion starter market cap is about half of the $10 to $15 billion valuation it was rumored to be worth back when management first began flirting with an IPO in late 2021.
Reddit has more than 267 million active weekly users, a figure that few other websites can boast. Revenue rose by 21% to $804 million in 2023, and management was able to cut losses in half to just below $91 million.
Many observers think that Reddit stock could become a new meme stock since so many retail investors already use the platform. In fact, the r/WallStreetBets forum in which the meme stock craze of early 2021 emerged was listed on Reddit.
This could lead to a large surge in the share price as it did in the past for GameStop (GME) and AMC Entertainment Holdings (AMC). Like those stocks, Reddit lends itself to the meme sector since the platform is well-known for posting GIFs and internet memes.
Meme stocks FAQs
Meme stocks are stocks favored by retail traders – but not by professional or institutional traders – that grow popular through its backers publishing memes on social media websites to win converts. Images or GIFs are typically used to transmit some type of excitement, committment or comedy regarding investment in the stock. These stocks normally are beaten down names that appear to have an uncertain or dour future based on falling sales figures or rising losses. Interest in these names normally comes from either belief in a turnaround story or its heavy short ratio.
Online investing forums like Reddit’s r/WallStreetBets are known to be breeding grounds for meme stocks. Normally, some small group of posters begin making memes of a stock they are buying. If the argument behind it is cogent or even just funny, the memes may provoke other retail investors to jump aboard. Interestingly, the merits of a stock are normally immaterial to it becoming a popular meme stock other than it being abandoned by the wider market and thus cheap. Stocks with high short ratios are usually likely to become meme stocks, because the nature of the argument for investing in the stock is that it can be the subject of a short squeeze.
A short squeeze is when investors swiftly buy up the shares of a heavily-shorted stock. Because the stock is heavily shorted, there is a dearth of available shares to purchase. This allows smaller volumes of buying to push the stock’s price up more easily. Since the share price suddenly rises, short-sellers need to purchase the stock to close out their short positions. This rapid buying and closing of short positions produces an unusually low level of supply that causes the price of the stock to rise rapidly. This type of short squeeze was the result of the first meme stock craze regarding GameStop.
Besides GameStop – the ur-meme stock – there have been a number of other meme stocks. Two of the most popular are AMC Entertainment and Bed Bath & Beyond. AMC CEO Adam Aron used the popularity of AMC shares among the retail class to effect a secondary offering that raised enough money to stave off bankruptcy during the 2020-2021 pandemic. Bed Bath & Beyond saw a flurry of volatile trading but eventually went bankrupt in April 2023.
Reddit stock chart
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RDDT 5-minute chart
Author
Clay Webster
FXStreet
Clay Webster grew up in the US outside Buffalo, New York and Lancaster, Pennsylvania. He began investing after college following the 2008 financial crisis.
