However, with a historical lack of profitability and the business facing challenges from third-party apps, investors may want to hold back on their excitement for Reddit IPO. As a group, the WallStreetBets group caused a handful of companies’ stocks to spike, including GameStop, and made the case for the stock as a value investment — that it was more valuable than the stock price indicated. Hedge funds started to sell the stock short, betting it would go down. One study found that after fake news about small firms was published, the companies’ stock prices rose temporarily before falling again. “The deceptive articles often coincided with press releases and insider trading, suggesting that those firms tried to artificially inflate prices and sell their stock in a ‘pump and dump’ scheme,” wrote Yale Insights.
The performance of the investment would not reflect the performance of Reddit. Although Reddit makes most of its money from advertising and an ad-free premium membership plan, it has so far struggled to tap into that business model and is still unprofitable despite operating overvalued stocks for nearly 20 years. Since The Information’s report, Fidelity reduced its estimate of the company’s worth in June, and Reddit was reportedly struggling with protests over changes to its API pricing, with some popular subreddits going dark in response to the move.
GameStop was one of the most shorted of all publicly traded companies. Other companies on the list include AMC Theatres, Bed Bath & Beyond and even the mostly defunct Blockbuster. It provides a convenient method of payment for elevated executive salaries and an avenue to riches for people ― usually organizations of rich people ― who want to bet on stocks. The Guardian outlines a host of other businesses, particularly AMC Theaters and Blackberry, who were roped into the investment tete-a-tete and also experienced stock surges over the past week. They, and other companies such as Bed, Bath, and Beyond, Nokia, American Airlines, and even Blockbuster (with only one physical store left in the country) have been targeted as future candidates for “short squeezes.” Finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions.
Reddit: Social media platform files to go public
So far, the best performer on the S&P 500 this year has been Occidental Petroleum, which has almost doubled bill williams trader in price. Valero Energy returned around 40% and Exxon Mobil, Hess, and Halliburton are also winners.
The internet has been used to prognosticate about stocks for decades, but there’s never been anything quite like the Reddit community called r/wallstreetbets, also known as WSB. Financial markets cannot tell us what is good and what is bad. They can only tell us what a lot of people thought they could make money on at a certain point in time. The real work of determining what kind of world we want to live in is the proper subject of democracy, not high finance.
- This was because GameStop, a US-based video game retailer, spiked over 700% during a frenzied few days at the end of January.
- If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return.
- Individual investors and their constant stream of communication are making waves.
- Mike Novogratz, an investor and former hedge fund manager, said the internet activity is the result of frustration that everyday investors are often locked out of lucrative opportunities, such as initial public stock offerings.
- There is much about this picture that is unpleasant, notably the extreme power of a handful of tech firms that have repeatedly proven themselves to be poor stewards of the public interest.
- They’re worried the Fed may tip the U.S. economy into a recession.
And all the independent investors who jumped on board to stick it to the big hedge funds? They earned a boatload of money, acted out on their disdain of traditional financial traders, and gamed the system in their favor. “I can now write my mom a check and put my sister through lymes treatment,” The Guardian reports one saying.
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After the pandemic boom in tech stocks, new stock issues slowed to a trickle as tech stocks crashed, and that seemed to put Reddit’s IPO plans on hold. With tech IPOs starting to pick up steam, including recent filings from Arm and Instacart, investors could have a shot at a Reddit IPO in the not-too-distant future. But, since Reddit is currently a privately held company, investors will either have to be patient and wait for an IPO or invest in the stock through secondary channels. This happened during COVID-19, when GameStop and many other retailers were hit hard by the pandemic. In April 2020, GameStop’s stock was valued at a mere $3.25, and it was intending to close 450 stores in 2021.
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Short sellers do the opposite — they borrow and sell a stock when it’s high and bet that it will continue to fall. If that doesn’t happen and the stock price rises, short sellers are forced to cover their positions or when do day trades reset buy more stocks — to minimize their losses. Exchange-traded funds aren’t typically a good way to get exposure to privately held companies since they mostly invest in publicly traded securities like stocks and bonds.
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But after ending 2020 at $18.84 per share, GameStop stock is selling for well over $200 as I write, with the price swinging quite a bit, as it is all happening for no reason. “It’s long past time for the SEC and other financial regulators to wake up and do their jobs — and with a new administration and Democrats running Congress, I intend to make sure they do.” Because short sellers — frequently hedge funds — in essence are betting against a company’s success, it can be a risky position. Any positive news or enthusiasm for the stock will push up the stock’s valuation, minimizing profit for the short seller. In the case of GameStop, chatter on massive online trading forums invigorated interest in buying the stock, pushing up the price, which in turn fueled more interest. After GameStop’s shares started to soar, the early investors who wanted to stick it to hedge funds decided to squeeze short-sellers betting against other stocks, and BlackBerry Ltd. happened to be one of them.
The Redditors have made this brazenly clear to the world, and for that they should be celebrated rather than condemned. We’ll learn more if the company files to go public and releases an S-1 prospectus. Until then, it seems like the company is still trying to find its footing and reach breakeven in the competitive social media sector. Although there are some ETFs that invest in private equity or venture capital firms and could give you exposure to Reddit, that exposure is likely to be minimal and not worth the investment. Without knowing its complete financial results, it’s difficult to say whether it’s a good idea to invest in Reddit stock, especially since the company doesn’t have a clear valuation. Social media has been a fabulously profitable business model for companies like Meta since it allows them to sell ads against user-generated content, which can be very lucrative with enough traffic and the right targeting.
The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. Yet previous Reddit-fueled rallies typically lasted a matter of days before profit-taking pulled prices back to earth. The subreddit’s obsession with GameStop shows no signs of abating. Simply put, the subreddit amplified a trade, stoked a fear of missing out that pulled in new investors, and reveled in Wall Street’s surprise.
Reddit is a particularly effective channel for influencing stock market sentiment. Historically, when interest rates rise and borrowing costs go up, investors pull out money from the riskier parts of the economy. High growth companies and tech stocks are the first to see their stocks fall. We have gone through leading Reddit forums such as r/WallStreetBets and r/stocks to compile the list of recently covered stocks and provided the investment thesis on these stocks.
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After the stock price falls, they repurchase the shares at a lower price and return them to the lender. In doing so, they pocket the difference between the money made from selling the shares at, say, $50 each, and the price paid to repurchase them, perhaps $25 each. Reddit’s reputation as a meme engine and host to niche fan communities has created the perception that the social media platform is relatively innocuous. Yet, fake news spreads extremely easily on Reddit — and fake news has real-world repercussions. Dis- and misinformation caused stock market losses of $300 billion in a single incident. Stocks that often became popular were ones that had been heavily bet against by professional investors, such as hedge funds.
The Impact Of Reddit Sentiments On Stock Market Prices
CEO Steve Huffman told The New York Times in August that the company “is still planning on going public, but we don’t have a firm timeline there yet. All good companies should go public when they can.” Finder monitors and updates our site to ensure that what we’re sharing is clear, honest and current. Our information is based on independent research and may differ from what you see from a financial institution or service provider. When comparing offers or services, verify relevant information with the institution or provider’s site. Talk with a financial professional if you’re not sure. Individual investors and their constant stream of communication are making waves.