Three Things (1/29)

r/ initial_public_offering

Reddit has long been in the IPO wings as the social media company waits to test the public waters. According to people familiar with the matter, the company is hoping to go public in March at a valuation in the mid-single-digit billions. Private trades of Reddit’s unlisted shares have been rumored to value the company below $5 billion.

The valuations in discussion demonstrate the extent of tech’s retreat from the overpriced funding boom that peaked in 2021. Reddit raised funds that year at a $10 billion valuation, and was once rumored to be considered for a $15 billion IPO. This will likely be the first of many late stage companies to test the public markets at a much discounted price to its latest round.

Tech leads the way

Although the S&P 500 is back to all time highs, technology is the only sector in the index that can say the same. The other ten (10) sectors are trading an average of 15% below their all-time highs (dispersion chart below). The market’s rally was much wider two years ago - seven other sectors—industrials, financials, consumer staples, real estate, healthcare, utilities and materials—joined tech to trade at new highs.

When just a handful of big stocks are responsible for most of the market’s gains, it creates a potentially vulnerable environment for a dramatic downturn. The aforementioned makes the Fed’s policy meeting on Wednesday and Big Tech’s earnings that much more important for sustained growth. 

Apple update

Apple’s sweeping overhaul of its iPhone software, App Store and Safari browser in the European Union is likely a peek at the future of the company’s operating system. The revamp will satisfy longstanding requests from developers and regulators: the allowance of third-party app marketplaces and alternative in-app payment options, among others. The changes add up to an iPhone that’s more customizable and less hostile to outside software.

On the surface, the App Store’s new commission structure looks great: apps pay no cut of sales to Apple if they’re distributed via a third-party store and their percentage drops dramatically even if downloaded with Apple. The real caveat comes into play only once apps are popular enough – any app that sees more than 1 million installs per year must pay Apple a 50 euro cent fee (~54 cents USD) for every new installation over that first million, including updates. It’s the updates that get tricky – any sufficiently popular app is going to be indefinitely paying Apple 50 euro cents per user per year. We hope there aren’t any bugs.

Disclosure:

As of writing, AAPL , NVDA, META, and MSFT are holdings in Titan's Flagship strategy.

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