📈 Reddit stock surges 67% on IPO

Plus, Apple sued by DOJ and Lululemon stock in trouble?

March 24, 2024

TOP STORY
📈 Reddit ends the week up 35% after surging 67% on its IPO

🥳 The day has finally come, Reddit has gone public! ✨ 

Hitting the NYSE with a bang and raising $748 million in its Initial Public Offering, Reddit shares surged as high as 67% above the initial offering price on its first day of trading this Thursday

While Friday erased some of these gains, the stock still ended the week at $46, 35% above its IPO price, with a $7.31 billion valuation.

✨ Here are the highlights:

  • 📊 Reddit’s IPO is the 4th largest debut on a US exchange in 2024.

  • 📲 Reddit is the first major social media company to go public since Pinterest (PINS) in 2019.

  • 🪴 Reddit’s IPO signals a resurgence in the market for IPOs after two years of sluggish activity.

🎬 The Reddit IPO: A long time coming

Reddit’s journey to IPO has not been easy. Initially filing in December 2021, a record year for IPOs with $339 billion raised, Reddit abandoned the IPO after the market started struggling.

👷 Still some work to do

As we discussed last week, Reddit is still unprofitable, with a $69M net loss in 2023. That said, its financials have been improving, with revenue increasing 21% to $804 million in 2023.

Investors are also excited about Reddit’s recent AI deals, including a $60M deal with Google to license Reddit data to power AI models.

Some analysts predict Reddit could be worth $10 billion, pointing to its fully diluted valuation in its 2021 funding round.

🔜 More IPOs Coming Soon?

Reddit's IPO comes at a time when the market has cooled significantly, with only $26 billion raised in 2023 - a massive 92% drop from the peak in 2021.

With many high-profile IPOs scheduled or rumored for 2024, including Skims, Plaid, Discord, Chime, and Turo, many hope that Reddit’s success marks a turnaround for a struggling IPO market.

💡 87 Blossom members bought the $RDDT with 70 still holding the stock in their portfolio

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TECHNOLOGY
🍎 Apple Under Fire in Massive Monopoly Lawsuit

Apple has been sued a lot, from Masimo suing the tech giant for patent infringement to Epic Games (the maker of Fortnite) suing over high App Store fees - but this time, it’s the US government taking a swing over Apple’s alleged Monopoly power.

🤔 What is a monopoly?

No, we’re not talking about the board game where you hope your friends go to jail… a monopoly is when a single company basically owns the whole market, and the government (or most specifically, the DOJ) doesn’t like it. This is because monopolies are generally bad for consumers, as without competition, the company can jack up prices.

👀 So Apple is a monopoly?

Well, that is what the lawsuit alleges, and this isn’t the first time. The DOJ has come to Apple 3 times in the last 14 years. At it’s core, the lawsuit says Apple has been illegally monopolizing the smartphone market not simply by staying ahead of the competition on the merits but by violating federal antitrust law.

Here’s the breakdown of the main arguments in the lawsuit:

  • 🧑‍🌾 A Walled Garden: Apple allows iPhone customers to send high-quality videos and photos seamlessly, but made them slower and grainy for Android. It gives its own products (like AirTags and Apple Watch) access to certain parts of its hardware that it restricts other companies from using.

  • 📱 Super Apps: Apple has fought hard against super apps like WeChat that allow users to install mini-programs. Apple has called these super apps a ‘major headwind’ as users are less tied to the Apple ecosystem.

  • ☁️ Cloud Streaming: Apple has limited cloud streaming or game hubs that allow users to play many games from a single app, as these eliminate the need for powerful hardware to play the games.

❝

“Apple recognizes that super apps with mini programs would threaten its monopoly. As one Apple manager put it, allowing super apps to become the main gateway where people play games, book a car, make payments, etc. would let the barbarians in at the gate.”

DOJ lawsuit against Apple

🧑‍💼 Does the lawsuit have merit?

While I’m no lawyer (surprise, surprise), I did extensively study competition economics in college, so let’s take a stab at unpacking this.

On one side, you have some experts like Vanderbilt Law School prof Allensworth saying the DOJ “made a strong case and told a coherent story about Apple making its products less useful for consumers in the name of maintaining its dominance.” But on the other hand, much of the case relies on outdated arguments or issues Apple is already addressing:

  • In January, Apple expanded what super apps could do, making it easier for applications to have their own set of embedded mini-apps.

  • Apple recently made it so a developer can create a single app that offers access to a library of titles.

  • Apple is adding RCS, or rich communication services, as part of an update to iOS 18 at the end of 2024.

The lawsuit also makes many silly assertions, including that the DOJ is partially responsible for Apple’s success due to an antitrust settlement with Microsoft in 2001.

For a comprehensive breakdown of more flaws with the DOJ’s case, check out this article.

🍎 What’s Next for Apple?

These types of lawsuits can last years and are also highly political - part of the Biden administration’s crusade against Big Tech. With a US election just around the corner, the future of this cases remains largely uncertain, and we’ll have to watch and wait as the story develops.

📉 Apple stock fell 3% on Thursday after the lawsuit was announced

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EARNINGS WATCH
😬 Lululemon and Nike plummet on earnings

Lululemon and Nike's stock fell ~16% and ~7% on Friday after Q4 earnings signaled slowing demand.

With Nike holding the spot for #22 most popular consumer stock on Blossom and Lulu at #30, let’s take a look at what’s going on with these two clothing giants.

🧘 Lululemon: Slowing Sales in North America

  • ✅ Revenue: $3.21 billion vs $3.19 billion expected

  • ✅ Earnings: $5.29 per share vs $5.00 per share expected

Despite beating both earnings and revenue forecasts, Lulu’s stock slumped due to slowing growth in its core market: North America.

Despite this, International sales did exceptionally well - growing 54% overall and 78% in China, but this clearly wasn’t enough to excite investors.

❝

“As you’ve heard from others in our industry, there has been a shift in the U.S. consumer behavior of late and we’re navigating what has been a slower start to the year in this market”

Lululemon CEO Calvin McDonald

👇 Blossom sentiment on $LULU remained largely positive with 46 buys and 14 sells this week.

👟 Nike: Slowing Sales Overseas

  • ✅ Revenue: $12.43 billion vs $12.28 billion expected

  • ✅ Earnings: $0.77 per share vs $0.74 per share expected

Compared to Lululemon, Nike had the opposite story - with better-than-expected growth in the US but a bleaker picture overseas and in China:

  • 🇺🇸 North America grew 3%

  • 🇨🇳 China grew 5% (worse than expected)

  • 🇦🇪 Middle East grew 3% (worse than expected)

  • 🇧🇷 Asia Pacific and Latin America grew 3% (worse than expected)

The upcoming Summer Olympic Games will be critical for Nike, with several new product launches and marketing campaigns planned for the event.

Nike is also moving to improve its gross margin from 1.6% to 1.8% with “strategic price increases, lower ocean freight rates, lower product input costs, and improved supply chain efficiency.” The company hopes to cut costs by $2B over the next three years.

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