If the market for initial public offerings recovers in the new year, one company that aims to go public early on is Reddit. An IPO will put the spotlight on the prospects for Reddit’s advertising business, which has fallen short of ambitious growth targetsoutlined by executives two years ago. ...
Let’s for a second take stock of what’s happening here.
The ad revenue is falling short of the projected prediction of what it was supposed to be. As in the profit from ad revenue did not reach that arbitrary number.
Reddit is still grossly profitable.
This is the same kind of headline that says Facebook lost 11 bagillion dollars but in reality they didn’t lose a dime they just didn’t make as much as they wanted to.
The difference with Facebook is that it is a public company, so it does have to grow every year to have value for investors.
Reddit doesn’t. It’s existing private investors can splot the profit and be just fine. They just want a huge payout that will only come from an IPO.
And the issue with consistent growth in billion dollar companies is that it’s not sustainable. We can’t just keep pilling on profits on top of profits to sate investors insecurities.
Are you not aware that public companies split the profits too? They do not need to grow to have value for investors.
Not all of them do that. There are growth stocks and dividend stocks. Growth stocks typically don’t pay dividends, but instead reinvest the dividend back into the company. Amazon, Alphabet and Berkshire Hathaway don’t pay dividends.
Of course not. But they can, whenever they choose to. Parent comment said they have to grow since they are public, unlike private companies like Reddit.
Yeah tell it to the shareholders
This gets said a lot but it is not true for a couple reasons.
1: With an IPO you’re not as dependent upon individual investors, and as your value grows - which often has nothing to do with your company’s performance, you obtain additional funding.
2: private or large-scale investors will literally have you sign contracts stating X% return on investment is what you owe them - once you surpass your return on investment, unless you seek additional funding, significant growth pressure is gone. Most companies immediately seek additional funding, which is how this gets interpreted as “requires perpetual growth.”
If this includes % of revenue, then yeah, your investor will want you to make wise choices, but they own that percentage in perpetuity, so there is generally not the pressure related to seeking new investment - they’re already priced in and getting their returns.
You can literally find examples of these contracts online by searching for “investor agreement sample.”
People usually only care about your growth as a function of how it correlates to a rise in your value. Most stock growth is entirely based on feels - it’s closer to social media than it is to any sort of accounting.