Where Can Boeing Go From Here? Also, How to Value Reddit?
The union leaders and Boeing had come to an agreement a week ago-ish that would have brought back a few perks to union members, but this agreement neglected to include pensions. I thought, foolishly I guess, that the union would accept this agreement nonetheless. I was wrong. The union rejected this agreement because it did not bring back pensions. This puts Boeing in an insanely tough spot. Where can they go from here?
Boeing has already taken the regrettable but necessary step of raising $19 billion from stock sales, they are making noise about selling their space division, they have already cut 17,000 jobs, and they are on their third CEO in five years, and there is no way that they can afford to give pensions to their employees, which is exactly what the employees desperately want. In short, this company is really screwed. I do not know where they can go from here. I am not sure what levers they can pull. I do not know if Kelly Ortberg is the man for the moment. I have not seen anything that tells me he is good or bad, just that he has been dealt a really tough hand.
The only measure of support this company has is that the US Government will not let them fail, yet. Boeing is the only American airplane manufacturer for companies. They are in a duopoly with Airbus, and for obvious reasons, the American government does not want the American company to be supplanted by Airbus, or by any Chinese manufacturers that are coming up. However, this deterioration can only last for so long. Eventually, an American competitor will arise, and the US Government will stop being so light on Boeing.
The only thing Boeing can do is sell more stock, and they can try to root out the corruption that pervades the company. This company has too many challenges: Their union is too aggressive, they have rising competition on the defense side, their brand has taken a major hit, and no CEO so far has successfully fixed the internal dynamics of this company. Do not invest in this company. I understand that their value makes them attractive (down 70% in five years, while revenue has stayed relatively stable) and that the relative security this company provides makes this company seem like a buy. However, I am telling you that this company is a trap. It looks good, but Boeing is a failed company, and I have seen no reason why they can turn this around.
When Reddit IPOd seven months ago, it cost $34 a share. Now, Reddit costs $82 a share. This is a 140% pop in seven months, which is probably a bit steep. When I started researching for this article, I was planning on writing about how Reddit was wildly overvalued and how it screamed “sell.” Now, though, I am really struggling with how to value this company: is it a buy, sell, or hold?
First, the bad. Reddit does not make much money. They are unprofitable right now. Their leaders have sold a lot of stock, and the company seems to have little interest in growing the company up, making it an adult company focused on revenue. Worsening the revenue problem is the fact that Reddit’s Subreddits, the forums for interests like “technology, investing, etc…” are controlled by moderators. There are 138,000 active Subreddits, and the moderators that run them are not employees of the company, just volunteers managing online groups that they are interested in. This means that the moderators can shut down Subreddits in protest, and basically go on strike if the company makes changes they do not like. This sounds improbable, but it happened last year for two days across many of Reddit’s most-used Subreddits. That is most of the bad news.
Reddit has a highly, highly dedicated user base. It is hard to put into words how dedicated the user base is. These Subreddits are so niche and specific that it is where quite a few users find genuine community and help. For example, my favorite soccer team in the world (Tottenham Hotspur, COYS) has a dedicated fan forum Subreddit run by fans of the club with 200,000 members. There is constant analysis and conversation at every second of the day.
There is also the AI piece. Reddit is one of the best places for AI companies to get data from. OpenAI and Reddit already have a contract where OpenAI gets to scrape every post and comment ever on Reddit for their AI model. Every day, there are millions of comments and posts on Reddit as well, providing a great source for LLM models. I could see this as a nice boost to Reddit’s revenue in the future.
There is also the porn piece. Over a quarter of Reddit is porn in some way or another. And this taps back into the “niche interest” part of Reddit’s offering. The company is more than fine with this existing, as nobody is breaking any rules (porn-related stuff is cordoned off under the easily bypassed (more money) 18+ section). This absolutely drives users to the website, and betting on horny people to continue watching porn is often a great call.
On the whole, I think I lean closer to sell than buy, but I could see my opinion be swayed.
All of that said, they do report earnings today, so everything I just said might turn out to be garbage.
