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Would You Invest in Reddit?

By Rachel Warren and Jason Hall – Jan 13, 2022 at 2:36PM

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The social media company is set to go public in the near future.

2021 was a record year for IPOs, and just before it closed, news broke about an interesting one that's coming up in 2022: Reddit, it seems, will soon become a publicly traded company. Would you buy shares of the internet forum powerhouse? In this segment of Backstage Pass, recorded on Dec. 17, Fool contributors Jason Hall and Rachel Warren share their takes. 

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Jason Hall: I'm totally a Reddit buyer, absolutely. It's like a lot of other social media platforms -- there are the corners of it that are just the dumpster fires, right, that have the stuff that's not great. But I don't think it's as endemic there, partly because it's pretty highly moderated, which I think is a big differentiator between [it, and] basically everything else that's social media.

It's also not, really. I mean, it is social media, but it's not like Facebook, where you feel this peer pressure to friend your boss. And you don't want to friend your boss because you don't want him in your feed with your Uncle Joe.

Rachel Warren: You don't want him to see all your posts. [laughs]

Hall: Exactly, that's the thing. I think that's one of the things that is challenging with a lot of traditional social media, is you end up with these overlaps. And Reddit's model, where things live in their own little buckets, [in] their subreddits, I think is brilliant. I think it's really useful for a lot of its users, and it's the front page of the internet. There's so much great user-generated content on there.

It's like YouTube, but you don't have to pay for clicks. It's really, really a powerful model. So again, Rachel, to your point, pending seeing the economics of the business, which I would think should be very high margin, it should generate good cash flows because it's an ad business with huge operating leverage, because every new viewer you add, every new user you add to the website, adds zero incremental cost. It's tiny, tiny, tiny. Their fixed costs are pretty low. I think it's exactly the economic model of a business that I would totally want to own.

And it starts with the product. It's a great product. It's sticky, people love it. They find it, and they find more ways that they use it. Then their family members have an intervention and make them stop because they've been on it 16 hours a day for the past two months. It's a really, really compelling company.

So depending on valuation and the nuts and bolts of the business, I think I definitely am really interested in Reddit when it goes public.

Funny about private companies that I'd be interested in buying. Toby, you suggested this as part of the show notes today, and I started thinking about products that I use in companies that aren't public.

Something that over the past four or five months since we moved here, that has just been a really impressive series of products, are some cordless battery-operated power tools. The company is called EGO Power, E-G-O, so Go Electric. They're very high voltage, high current. I have an 18-inch chainsaw. I have a snowblower, that I will finally get to use, Travis Hoium, I will finally get to use tomorrow.

I have a mower. They all use these same battery packs -- everything but the snowblower. They're very impressive tools. They're durable. I started doing some research. The company that owns this brand also owns SKIL, S-K-I-L, like the Skilsaw. That's the original brand circular saw. You think about popular power tools -- SKIL is one of the original brands. They own SKIL, they own four or five other brands as well. They went public literally today on the Hong Kong Exchange.

Warren: That was a great idea you had. [laughs]

Hall: I know. Yeah, it's a really interesting company.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jason Hall has no position in any of the stocks mentioned. Rachel Warren has no position in any of the stocks mentioned. The Motley Fool owns and recommends Meta Platforms, Inc. The Motley Fool has a disclosure policy.

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