Reddit's IPO is a regrettable mis-step in corporate governance | Hacker News Reader

Reddit's IPO is a regrettable mis-step in corporate governance

ft.com

28 pointsttymck22 comments

Reddit is a lemon. "Some invitees say they’re worried about the company’s financial situation. Reddit recorded a net loss of $90.8 million last year, an improvement from 2022, when its deficit came it at $158.6 million. The company said in its prospectus that it’s racked up a cumulative loss of $716.6 million."

Reddit's CEO and COO made $193M and $93M in 2023 but their CFO "only" made $6.6M

So if you eliminate the CEO and COO, they have a profitable business. Given those two have tried to kill the community over and again, why keep them?

Their comp is largely stock, not cash. Eliminating them won't move the needle much on net loss.

Stock issuance deducts from GAAP earnings. So yes, it sounds like they would be profitable excluding this issuance.

Imagine you own 1% of a business that nets $100/year in cashflow, so you're entitled to $1/year. But they give the employees of that business 2% (of total count) additional shares per year (and not you).

Are you making or losing money? Cash flow positive, negative earnings... loss of your equity exceeds your cashflow.

That's not how it works for this comp. It is the max total stock comp for a 10 years employment if every milestone is hit and reddit market cap goes up 300%.

My example was to refute the parent poster who implied, in a seemingly general sense, that stock issuance doesn't impact earnings, which is false.

As to the exact timing of the accounting treatment in this case, I'm not privy to that. The statement above was that the CEO was paid ~$193m in stock, which implies it was issued in that fiscal year. Maybe it was in this case, maybe it wasn't, but that doesn't change the underlying point.

Stock grants absolutely do adversely impact GAAP profitability. A company will dilute existing holders to issue RSUs or otherwise.

> My example was to refute the parent poster who implied, in a seemingly general sense, that stock issuance doesn't impact earnings, which is false.

I was talking specifically about their comp, not stock in general. Which is why I specifically said "their comp" and not more general language.

When investing, I always ask myself the question, "Does the CEO/founder/leadership team have the same incentives I do to make the company succeed?"

Dual class share structures, special warrants (very common in SPAC days), etc. all misalign later shareholder incentives with leadership incentives. As a rule, I avoid such investments.

I wish such incentives were (a) clearer to see in many cases, and (b) not as common as they are.

Are those incentives able to be gleaned from or stated in the S-1?

For public companies, I believe that's the case, yes... Though I have to admit that sometimes the terms are so convoluted that they're very hard to follow or understand.

The CEO will make 200 million if they hit a $90 share price milestone.

Is that clear enough?

https://archive.ph/ZbSAg

Why would you hold this when the VCs and others are dumping it?

This was the easiest short positions I have ever called. [0]

[0] https://news.ycombinator.com/item?id=39735444

Can you provide details of your particular short position? What's the strike/expiration if you have puts? What percent of your portfolio did you put into this position?

Most likely imaginary? I'm not certain if there were any options to short $RDDT today.

Right, but maybe OP has some more exotic method of shorting the company. Otherwise I'm not sure why they are patting themselves on the back for having risked nothing and gained nothing.

> Right, but maybe OP has some more exotic method of shorting the company.

It is possible to do this with standard CFDs (Contract for Difference) to long or short any company once they have listed on the stock exchange and this is available in EU countries and outside of the US which CFDs are banned.

None? This sounds more theoretical. Options aren't available right away for new stocks. He'll have to wait a few days, if not weeks.

Options are always available if you have a trusted friend who has a different opinion on the stock than you!

While jumping on the bandwagon and criticizing Reddit's financials is easy, we should consider its long-term potential. The company has a massive user base.

Which it has been able to do nothing with for decades.

Once you have all the eyeballs, if you still can't make money that is really not good.

Reddit is very popular with people with unprofitable eyeballs, and very unpopular with people with profitable eyeballs.

I suspect that’s a very Facebooky user base as time goes on. As in users have accounts but don’t login and use them.

I have 2 accounts and I’ve not been to either in over 2 years. With ChatGPT I have even less reason to ever use those accounts. Why ask something on Reddit when I just ask ChatGPT and get an equally half baked response?

Reply on news.ycombinator.com