Can Redditors Revive the I.P.O. Market?

Reddit’s bet on Redditors

Reddit is the latest company set to test the uncertain I.P.O. market, after the unprofitable social media company built around an avid community of newshounds, cryptocurrency devotees and reality TV fans filed to go public.

The company is seeking a valuation of at least $5 billion and DealBook sifted through its prospectus to figure out its pitch to investors.

Its army of users, big-name backers and its bet on artificial intelligence figure prominently. The company sees A.I. helping it turbocharge its ad-sales business and generate new licensing revenue. Reddit confirmed yesterday that it had signed a deal with Google that’s reportedly worth $60 million a year to help the search giant train its A.I. models.

That will probably appeal to investors, given the boom in A.I. demand that’s fueling a global stock market rally. But whether that’s enough to push Reddit to become profitable is a big question hanging over the listing.

Reddit power users will be allowed to buy in at a price usually reserved for institutions. Such an arrangement is unusual — Uber and the share-trading app Robinhood did something similar — and risky (particularly if, like Robinhood, the stock later sinks.)

Investors should keep that in mind, Joachim Klement, an investment strategist at Liberum, told DealBook. “My view on this I.P.O. is that Reddit is struggling to make a profit and will face a challenge to get a good valuation,” he said.

WallStreetBets is listed as a risk factor. The vibrant Reddit community of day traders and market watchers rose to fame in 2021 during the meme stock frenzy that helped send shares of the retailer GameStop on a wild ride. The eventual collapse of the stock led to a congressional hearing into social media’s role in fueling rallies, crashes and potential bubbles.

The Reddit community was quick to spot the irony that its members were being treated as a risk and a key to the listing. “Meanwhile they’re inviting WSB users to participate in its IPO,” one user noted.

Here are other details from its prospectus:

• Its biggest shareholders include Advance Magazine Publishers, Tencent Cloud Europe, Fidelity Management, and OpenAI’s Sam Altman, formerly a Reddit board member. His stake would be worth $435 million if Reddit hits its $5 billion valuation target.

• The lead underwriters are Morgan Stanley, Goldman Sachs, JP Morgan and Bank of America.

HERE’S WHAT’S HAPPENING

Nvidia share price surge sets a record. The chipmaker added $277 billion in market value yesterday, the biggest one-day gain ever for a U.S.-listed company, after its blowout earnings report. The results helped power rallies in both the S&P 500 and the Nasdaq composite and have put Jensen Huang, Nvidia’s C.E.O., on the cusp of becoming one of the world’s 20 wealthiest people, according to Bloomberg.

A space start-up’s lander makes it onto the moon. The Odysseus robotic spacecraft became the first U.S. vehicle on the moon since 1972 and the first commercially produced one to make it there. Shares in Intuitive Machines, which went public last year via a blank-check fund, were up 44 percent in premarket trading.

New investigations cast scrutiny on Meta and children’s safety. The Wall Street Journal reports that officials at the social media giant flagged how subscription tools for Facebook and Instagram were being abused by adults seeking to exploit their own children. And The Times examined how thousands of parent-run accounts featuring girls and run as influencer businesses are followed by scores of adult men, many of whom admit to being sexually attracted to children.

Do telecom companies need more regulation?

The hourslong meltdown of AT&T’s wireless network left tens of thousands of clients without service and cut off 911 and other emergency services. (Customers of Verizon and T-Mobile also reported problems, though that may have been from them constantly redialing AT&T users.)

That chaos underscores how, with just three major wireless providers, the U.S. is reliant on a small number of companies for a crucial utility. While the providers are regulated by the F.C.C., should they face tighter scrutiny? That question is already being whispered among Washington policymakers.

Telecom companies would push back strongly, arguing that this was a one-time event and that they’re economically incentivized to avoid shutdowns. The industry also carries lots of heft in Washington: It successfully fended off a bid by the F.C.C. in 2008 to require eight hours of backup power for cell sites, following outages caused by Hurricane Katrina.

But the damage from such outages can be great. A major lesson from the pandemic is that we’re more reliant than ever on the private businesses that power our economy. (At least one restaurant had to turn away breakfast customers because it couldn’t process payments, The Times reported.)

There’s also a national security risk, with some observers worrying about whether a cyberattack was to blame this time. AT&T told ABC News that a software update, not hackers, was the culprit.

The Saudis are back in Miami

Some of the most powerful bankers and executives in the country have descended upon Miami Beach this week to meet with Saudi Arabia’s investment chiefs, hoping to tap into the kingdom’s billions.

The packed gathering at the Future Investment Initiative is a further sign that fraught politics between Riyadh and Washington are hardly diminishing the appetite to talk deals. (One attendee called it “crack” for U.S. financiers.) Here’s what DealBook’s Lauren Hirsch picked up at the scene:

Saudi spending is changing. Yasir Al-Rumayyan, the host and the head of Saudi’s Public Investment Fund, said that the sovereign wealth fund planned to reduce its international investing exposure to 20 to 25 percent, down from 30 percent. (The focus instead is on huge domestic projects, including the 2034 World Cup.) But the amount of money it plans to spend will grow to $70 billion annually next year, up from roughly $50 billion today.

One big investor told DealBook that, given the fund’s increasing domestic focus, he planned to do more deals in the kingdom.

A-list guests from the worlds of money and politics mingled on a hotel patio. Jared Kushner, Donald Trump’s son-in-law, held court at a corner table while Steven Mnuchin, Trump’s Treasury secretary, sat at a table with Jenny Johnson, the C.E.O. of Franklin Templeton. Also there were Michael Dell, the former SoftBank executive Marcelo Claure, the private equity mogul Robert Smith and Gwyneth Paltrow (who is raising a venture fund.)

Artificial intelligence was a major topic on- and offstage. One executive told DealBook that people weren’t fully appreciating how many layoffs the technology will bring. Another recounted conversations in which other corporate leaders spoke excitedly about A.I.-driven cost cuts.

Talk about geopolitics made it onstage, unlike at the Riyadh conference in October, which one attendee called “Disney Land” in spirit.

Mike Pompeo, a secretary of state under Trump, raised concerns about Iran and touted the Abraham Accords, the agreements normalizing Israeli relations with several Arab countries that Pompeo helped to broker.

What to watch for in Buffett’s big letter

Tomorrow is a big day for Berkshire Hathaway: The conglomerate will publish both its annual report and Warren Buffett’s latest letter to investors. As they have for decades, followers of the Oracle of Omaha will pore over what he has to say about the economy, investing and more.

But tomorrow’s letter holds special significance, in large part because it’s the first since the death late last year of Charlie Munger, Buffett’s longtime business partner. Here’s what to watch for.

What will Buffett say about Munger? Long known as Buffett’s alter ego, Munger was happy to be seen as the sarcastic but sagacious second fiddle at Berkshire Hathaway.

Many expect tributes from Buffett. “For a guy that normally isn’t very emotional, this is very hard,” Bill Smead, the chairman of Smead Capital Management and a Berkshire investor for decades, told DealBook. Munger, Smead added, was “his business rock.”

What are Berkshire’s plans for its “elephant gun” cash hoard? Buffett built the company’s considerable wealth on big acquisitions, using the huge amounts of money that its insurance operations generate.

That cash pile stood at more than $157 billion as of the third quarter, as Buffett increasingly favors buying back Berkshire stock over doing big deals. (Berkshire’s last sizable takeover was the litigation-wracked purchase of Pilot Travel Centers.) Buffett may write that he now plans to dust off that gun — but it’s just as likely that he’ll favor keeping it in the safe.

How will Berkshire prepare itself for the future? Munger’s passing was another reminder that Buffett himself is 93. He has laid out his succession plans, including identifying Greg Abel as the company’s next C.E.O. and Todd Combs and Ted Weschler as its chief stock pickers.

But some Berkshire investors want to know more. Smead said he’d like more information about how Combs and Weschler have performed — what Buffett is doing to “prepare us to trust them.

THE SPEED READ

Deals

• The judge overseeing FTX’s bankruptcy case will let the fallen crypto exchange sell its shares in Anthropic, the privately held A.I. start-up. (Reuters)

• There’s reportedly no breakup fee owed to Capital One or Discover if regulators block their $35.3 billion transaction. (CNBC)

Policy

• The International Brotherhood of Teamsters gave $45,000 to the Republican Party, the union’s first big donation to the G.O.P. in years. (WaPo)

• A McKinsey-led think tank is said to have made recommendations to Beijing that were adopted into a “Made in China 2025” policy that stoked tensions with Washington. (FT)

Best of the rest

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