Key Events
👉 Reddit shares soar after first public earnings release
Reddit shares climbed 11% at the open Wednesday after strong results and revenue guidance that surpassed expectations.
The company posted a 48% increase in revenue y/y and loss per share came at ($8.20) versus the ($8.71) estimate.
The earnings beat was driven by growth in Reddit’s advertising business.
This is important because the Company has not effectively monetized the platform for longer than its peers. It only started to get serious about advertising revenues in 2018. When companies go public in a colder market, they need to focus on profitability. That starts with generating revenues to offset their costs. Advertising revenue is up 38%.
However, the problem with ad revenue for Reddit is two-fold.
- Ad revenue is highly cyclical.
- Reddit is not a core advertising platform.
Ad revenue is not very attractive because of how cyclical it can be. Marketing dollars are the first to get cut. 20-25% on average. On top of that, advertisers do not view Reddit as a core advertising platform like Facebook or Google. They need revenue diversification.
So, let’s talk about their licensing model. Reddit’s second monetization strategy is data licensing. AI-focused companies like Google want Reddit user content in order to train their AI-models on the newest information. This segment is small. Wall Street is more focused on advertising. But, the Company expects to “recognize approximately ~$68.0 million within the next 12 months.”
Bottom-line? If the higher quality, contractual revenue can continue to scale, this only enhances earnings multiples.
👉 Consumer Credit report indicates slow growth and lower debt
The Federal Reserve posted the most recent Consumer Credit report yesterday, which indicated that total borrowing growth slowed to a 1.5% annualized rate in March.
That translates to a $6B gain in total consumer credit, compared to an estimate of $15B. The report is good news for markets, as economists were worried that US consumers were approaching unstable levels of borrowing, due to high prices for goods and higher interest rates.
👉 FTC sues to block Kroger’s $24.6B merger with Albertsons
The US DOJ backs Colorado’s lawsuit against the proposed $24.6B merger between Kroger and Albertsons.
Colorado filed the lawsuit in state court, arguing that the merger would negatively impact competition and residents.
If the merger were approved, the combination of the two stores would create a massive supermarket chain, potentially reducing competition and consumer choice.
Mergers and Acquisitions
KKR will acquire Perpetual’s corporate trust and wealth management businesses for $990M.
Private Equity
Bain is seeking to purchase PowerSchool, a K-12 education platform, valued at $3B.
Initial Public Offerings
General Beverage is planning a $222M Singapore IPO.
Venture Capital
Wiz Raised a $1B series E at a $12B valuation.
