ResearchThree Things (3/11)

Three Things (3/11)

Mar 11, 2024

Reddit’s new AI feature

While also preparing for its initial public offering, Reddit announced the release of Reddit Pro, a suite of AI-powered tools that give businesses access to relevant trending topics and easily view their mentions in subreddits. Reddit aims to help businesses reach and connect with their audiences and eventually convert those businesses into paying ad customers. Reddit’s roughly $6.5 billion valuation makes it arguably the most highly anticipated IPO in 2024, as it prepares to begin trading on the NYSE at the end of March.

In late February, Reddit gave Google access to its data for roughly $60 million so the search engine could train AI models on human posts. Unique data sets will be the differentiating factor as time goes on and Reddit is well positioned when it comes to proprietary data. AI tailwinds should help Reddit as it goes public - market participants are craving easier conduits to invest in the technology and Reddit's recent moves place them squarely in the arena.

Luxury earnings

Shares of Prada closed ~13% higher on Friday after reporting a 17% increase in revenue for 2023 and a 44% jump in net profit year-over-year. Other European luxury-goods companies also said they are seeing higher sales trends after many slow months. Prada is doubling down on its retail strategy, with planned investments of €1 billion over the next five years, as demand for its products rises across geographies.

While uncertainty from pandemic restrictions, changing consumer preferences, and rising inflation slowed retail spending for the lower end consumer, luxury shoppers continued to spend, driving Prada’s growth. Luxury buyers are far more insulated from the macro headwinds that usually hurt the average consumer so Prada’s growth is a strong signal that the wealthiest are not letting up any time soon.

Costco stumbles

Costco’s stock tumbled after reporting lower than expected revenue numbers for 2023. Despite the miss, EPS beat expectations and e-commerce sales grew 18.4% in Q4 2023 compared to the previous year. Improvements to the mobile app and the launch of Apple Pay increased app downloads to 33 million. The quarter was strong but with the stock priced close to perfection, investors believe it’s hard to see the catalyst for the next leg higher at the current valuation.

We love a business that on the surface looks like one thing but in reality is something totally different. Costco is a SaaS company disguised as a retailer. Investors have long benefited from Costco’s cult following and subscription model and hoped for a membership fee increase. Costco hasn’t raised fees since June 2017 and remains committed to their mission of high quality goods at the lowest possible price. The decision to delay the membership fee increase will be top of mind as investors reassess the business model amidst an inflationary environment.


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