Reddit is Officially Flat

Yesterday's bullish engulfing candle did not turn out to be so bullish. Today was quite a bearish day for RDDT. The price of Reddit closed the day at $44 per share. This is the exact price of Reddit shares when it entered the market. As of close today, Reddit is trading flat. I guess you could say that the technical outlook is neutral right now.

For the second day in a row, RDDT has traded with the lowest volume yet to be recorded. The volume has been dying off since RDDT's fourth day on the market when the price began to fall from all-time highs. This is not a good sign for any type of momentum. This is probably why the daily price action is flat as of today's close. Perhaps we will see the volume pick up once the price picks a direction.

Thanks to the big jump in price the few days following the IPO and the hype induced FOMO from traders, the majority of investors who didn't invest pre-IPO are holding shares at a loss. Are these investors in for the long haul? Will they continue to hold if the price begins to crash? Or, out of exhaustion, will they let go of their shares whenever they break even?

Don't get me wrong. If this ticker generates a positive technical trend with corresponding momentum and volume, then I will swing trade the stock like any other ticker. But as of right now, I am still bearish toward Reddit. If you are bullish on RDDT, then you will probably hate the rest of this column. I will be going over the reasons why I am bearish on this company so far.

The balance sheet doesn't control the direction of the price action. But to any long-term investor, a balance sheet like this doesn't look good at all. Reddit is holding a lot of debt. Sometimes the only way a company can grow is by taking on more debt. Although Reddit has grown since inception, the balance sheet situation has maintained this unhealthy stature throughout the companies lifetime.

Total revenue has generally been on an upward trend since 2020. Even more so the past several quarters. This is definitely a good sign, and most likely the main reason the company was able to eek out a positive net income for the first time in 2 years. If this trend continues, then eventually, the balance sheet situation should level out. So, the revenue picture looks relatively positive, but the cashflow situation looks a little more ugly.

The company has had negative free cash flows and they have had negative operating cash flows for about two years. They are burning through cash. This leads me to believe that they have no cash cushion to protect themselves from any unforseeable liabilities that may pop up in the near future. When public companies need cash, and their revenue streams wont suffice, then they take on more debt or initiate a share offering, which is bad for the investor.

The financials for this company are not the worst that I have seen. But they are not exactly healthy looking. Either way, the stock market is an irrational place and this ticker can rally just like any other as long as there is liquidity coming into this name and investors continue to buy at higher and higher prices. It is as simple as that. But with unhealthy financials, there is a lesser probability that any rally will happen. So like I already mentioned, I will remain bearish until I see a technical uptrend form on the charts with momentum and a buildup of volume. At that point, then maybe, just mabe, I will flip to bullish.