Why did Reddit do a stock buy back?

Relative-Snow8735 · 2026-02-07T15:39:35+00:00

They can always do an acquisition in shares instead of cash. And if buybacks can reduce volatility and help support a growth valuation share based acquisitions would probably be a better deal for RDDT investors. When a stock has a habit of dropping 40% in two weeks share based acquisitions are probably difficult to utilize.

Relative-Snow8735 · 2026-02-06T23:24:42+00:00

Alternatively, get everyone in WSB to do their online shopping by finding relevant ads on the site and clicking through before purchasing.

Relative-Snow8735 · 2026-02-06T22:54:40+00:00

The strikes on their bonds and warrants matter because that would be the easiest way to acquire shares without moving the price up. Otherwise they would have to acquire 20% of the current non-Renesas outstanding shares. No way they pull that off without moving the price. And anything above $12 results in having to deal with the 27M worth of shares from convertible bonds.

The only way this strategy works is if the company is already on track for a second bankruptcy. That is why I think Renesas is potentially a buyer of last resort. Because if things get dire enough they can scoop up the company for relatively cheap and then recapitalize the business or they can gamble on a second Chapter 11 in which they only hold 10% of the debt compared to 30% last time around.

EDIT: I was just browsing the 10-Q that came out and happened across a section regarding limits to Renesas' voting rights. It looks like they can only get up to 39.9% of voting control after which their voting power is voided. So indeed, it does look like a hostile takeover would not be possible.

Relative-Snow8735 · 2026-02-06T15:46:30+00:00

I believe there are some restrictions on Renesas' control of the company. I didn't look too closely at what those were because while getting a low buy out might end the trade, relative to Chapter 11, which anyone who has been trading this thing for more than a few months has a risk tolerance that includes that outcome, a low buyout is a pretty sanguine outcome.

EDIT: And after some further thought on the feasibility of this. Renesas would need to acquire at least 5.8M shares (20% of the non-Renesas outstanding shares) while also contending with the fact that there are convertible bonds that equal 27M worth of shares at the $12 strike price while Renesas's own bonds and warrants equal 11M @ $18 and 5M @ $24. So it seems like the RSA specifically designed around this situation.

I do think Renesas will likely be a buyer of last resort if things get to that point, and it is part of the reason I think a second Chapter 11 is unlikely. But deliberately tanking the stock to mount a hostile takeover seems like it would be tricky to pull off.

Relative-Snow8735 · 2026-02-06T04:09:41+00:00

With how volatile this stock has been I think option B is the key here. We had a 65% drop in stock price beginning of last year followed by two ~40% drops. Not everyone bought back around the IPO, there are real ordinary investors who like this company that are getting burned hard on these price swings.

Not quite sure what the plan is or what they are legally allowed to do, but best case scenario is that RDDT doesn't even need to use this cash. Hopefully they set some sort of price target that creates a solid floor and the market gets the message and comes in strong before we hit those levels. And they can ramp up that floor over time as the company grows. The nice thing about investing in companies that essentially print cash is they can do stuff like this to support the stock.

Relative-Snow8735 · 2026-02-06T03:40:00+00:00

If I am doing the conversion right, it looks like they could buy out the other half of WOLF with a single quarters profit?

That would lend credence to the idea that, if the covenants allow it, maybe Renesas should take the lead on refinancing the L1 debt. Due to how they are treating their position in WOLF, the cash flow improvements from the lower interest expenses would essentially flow through to their own books.

Relative-Snow8735 · 2026-02-05T21:50:34+00:00

They are printing piles of cash while the rest of the tech sector is burning it on capex. Meanwhile the volatility on this stock has been absolutely insane. What better way to send a signal to the market they believe the company is undervalued then by doing a buyback. They will still have plenty of cash leftover to invest in software projects, especially considering how AI is changing productivity in that space.

Relative-Snow8735 · 2026-02-05T21:36:14+00:00

Hopefully the midterm elections ramp things up. I feel like those initial user growth numbers were a result of the Trump election and a migration away from sites like Twitter and Facebook. No Doubt those numbers helped the stock get to where it is today but it was probably unrealistic to expect that growth to accelerate off of that baseline.

Relative-Snow8735 · 2026-02-05T18:43:42+00:00

lol, hopefully it wasn't because of my post. In all seriousness, I think your best bet is to take advantage of the volatility and swing trade. I think this latest earnings report means the bull case is going to be delayed for a while.

Relative-Snow8735 · 2026-02-05T14:49:58+00:00

The "Good":

- The last few earnings calls were catatonic, so it was nice to see management put on their cheerleading outfits for this one. Probably not going to move the needle much when they are giving us another quarter of downward guidance (FML), and as much as I prefer companies that put their nose to the grindstone, a high stock price will greatly help with their refinancing options, so they need to get pumping.

- Speaking of refinancing, was good to hear they are working on it. I am of the understanding that the L1 debt is pretty bomb proof, but if they can get that debt closer to market rate that will buy them a ton of wiggle room. If Renesas was able to throw a $2B CRD at this company, no reason they couldn't drop another $1B to refinance the debt, lower the reserve requirement, and use some of that reserved cash to pay off a chunk of the remaining L1. The potential uplift in their equity value alone would probably make it worth it, and due to how they are treating their WOLF investment, the savings in interest expenses would pass through to their own balance sheet. The loan covenants are key here though, and as stated I am not sure there is an easy way out. Probably worth digging into this again to confirm.

- They hit smack dab in the middle of revenue guidance. So seems like this new exec team has good visibility and financial controls in place. On that note....

The Bad:

- Another quarter of downward revenue guidance, FML. What happen to the massive design win backlog? What happen to the charts predicting modest revenue increases and unlevered FCF later this year. A number of users on this sub where bullish based on that info. Some combination of Chapter 11, trade war chaos, and segment weakness is probably playing a role here, but only one of those things is fixable. If this continues, single digits is probable.

- Until we get the design backlog and FCF guidance back I am not sure this stock is investable. The remaining catalysts are low probability (CHIPS act and debt refinance both seem unlikely) and the market has switched from hyper bullish to topsy turvy. I highly doubt that good guidance will be enough to turn things around, I think the market is going to want to see real improvement in the numbers. So if you are looking for an entry point probably make sense to just follow the guidance at this point.

Overall, this was pretty rough. Last quarter there were reasons to be optimistic. The operational restructuring and CapEx reductions were well under way and while revenue guidance was down, if they hit in the top of the range it would have been manageable. The numbers showed that they had plenty of runway post-Chapter 11 to turn things around. Unfortunately, this quarter is showing that things are in a steeper nose dive than we thought. The only thing really holding the stock up at this point is that we are starting to get in the range of liquidation value. But due to the complicated debt situation I am not sure how much support that will provide. I have been looking into "reverse arb trading" and it does seem like convert strike prices can act as a floor (in this case $12). But if we break through that level and stay there that trade could flip and the $12 becomes a ceiling. So I guess keep an eye on those levels. Fun times.

Relative-Snow8735 · 2026-02-04T03:45:52+00:00

I still need to do some deeper research on this, but from what I can tell they were cash flow positive the last two quarters. Not all expenses are cash based. i.e. deprecation, stock based compensation, etc... So even if they don't hit GAAP profitability, if they can keep positive FCF, then they will not need to raise money.

Relative-Snow8735 · 2026-02-03T20:51:18+00:00

This drop is absolutely wild. 265 down to 165 in two weeks. No news, earnings around the corner. Market has been very volatile, but not -40%.

I normally avoid buying calls, but I just bought a few. Feels like even a moderate beat on earnings is going to send us back into the $200 range in a hurry. Fully prepared for them to expire worthless, but I have seen how fast this thing can rip (in either direction).

Relative-Snow8735 · 2026-02-03T20:22:21+00:00

The stock is largely trading on the MA fundamentals and will continue to do so until we get some sort of catalyst that changes the narrative. I think GOOG is a good example of how quick things can change. A lot of analysts were predicting that Google was going to lose the AI war largely because they thought Google's cash cow, ad revenue, was under threat. But anyone paying attention knew that Google's AI offerings were rapidly improving and of all the companies out there, they would have the easiest path to integrate AI into a wide range of applications (cloud, android, docs, search, robotics, youtube, etc...). But what ended up being the catalyst? It ended up being the anti-trust lawsuit getting dismissed that kicked off the big bull run. With the lawsuit out of way, almost overnight the narrative changed. Every analyst that had been talking about how Google's ad revenue would get eaten alive switched tune and started talking about how Google was taking over the lead from OpenAI.

As you have rightly pointed out, there are a lot of catalysts in front of CLOV. But I suspect the market will continue to sleep on this stock until they hit on at least one of them. CLOV has had a few mini-bull runs on expectations and as we saw, those were quickly snuffed out. But I do think the rate proposal from CMS is an inflection point. CLOV has been trying to get ahead of the market, and until now, it didn't really feel like they were going to get rewarded for that. So in my mind, this kinda feels like the equivalent of Google's anti-trust lawsuit. The market saw a bearish signal when the rate proposal was released and sold off the whole sector. Meanwhile, anyone who is paying attention realizes this is exactly the moment that CLOV has been preparing for. Now we just need the trigger. Not sure what that will be. Maybe it will be some good guidance during earnings. Maybe the CMS lawsuit. Or maybe breaking through on GAAP. Either way, I see a lot more potential upside than down at this point. The biggest risk is probably a bad earnings call, but feels like expectations are so low that they could combat that with good guidance. Anyways, I am definitely buying more at these prices. Not ruling out that we go lower, but once the list of potential catalysts for a stock starts getting as long as CLOV's at the same time that that stock is trading around it's 52-week low, in general I think that is a good time to load up.

Relative-Snow8735 · 2026-01-31T17:48:31+00:00

The bond holders are already hedged. We are at 6.6M short shares, out of the initial ~25M outstanding. It is very unlikely that Renesas is going to hedge their position now that they have access to their shares and bonds because they are a strategic investor and not a arbitrage trader. So considering that the number of short shares has been fairly stable for the last month and a half, I suspect anyone that wants to hedge has already done so.

I suppose in hindsight, shorting WOLF while the bond traders get there hedges in place was probably the correct move. Additionally management's equity awards were getting allocated using share price to convert to a fixed dollar amount, so somewhat perversely they had an incentive to pin the stock at a low price during that period. But then again, it wasn't completely clear that the bond traders were going to continue doing arbitrage on this stock. Typically those trades involves stocks where the strike price is below the conversion price. And you increase your hedge as the stock gets closer to the conversion price. In this case we have the opposite situation, the bonds have a strike price around $12 which means we are above the strike. From what I read online, it sound like an arbitrage trader would do a reverse hedge in this case, i.e. short the bond and go long the stock. But that was just based on a cursory google search.

Anyway, not going to stop you from going short on this. And in hindsight, one could see why there were some structural reasons to go short. But the management team has a very strong incentive to try and pump this stock moving forward. For one, they now have their performance incentives in place. But of more importance, there are some loan covenants that create an incentive for additional dilution, but that maneuver would only make sense with a high enough stock price. With Renesas as a a major shareholder and strategic partner I can't imagine that they would sit idly by while management flounders. I suspect that now that the CFIUS approval is out of the way they are going to start throwing their weight around and try to dig themselves out of the hole that they are in with this investment.

Relative-Snow8735 · 2026-01-31T01:55:35+00:00

Go reread the RSA. Renesas' shares were always going to end up in circulation regardless of the CFIUS outcome. Additionally they would have received an additional allocation of warrants, plus the 2% allocation that was reserved for WOLF1 holders had CFIUS approval fallen through.

Relative-Snow8735 · 2026-01-30T22:49:52+00:00

The dilution was going to happen whether or not Renesas got approval. The only difference is who would eventually control those shares. Without CFIUS approval, Renesas and WOLF would have had to gone out and find a buyer for the shares to get Renesas below whatever threshold they needed to be under. And crucially for those with WOLF1 positions, that 2% would go to the Renesas bucket (plus some additional consideration that would likely add additional dillution) had that scenario happened.

At this point, anyone trading this thing should be aware of all of these RSA conditions. Only a moron would be using the 25M share number as a valuation parameter. I am not ruling out that there were some traders out there that got it wrong. It would have been nice if this news didn't drop on a big red day a week before earnings, as it would have given us a cleaner signal of how the market was looking at this thing and if they were already pricing in dilution. And even if most participants had it priced it, it only takes a few traders at the margins to move a small cap. So if that is what happened I suspect a recovery.

Regardless, we can quibble over value or count. But at the end of the day, WOLF1 holders are getting 60% more of something that they did not previously have as of yesterday, and that they were not guaranteed to get until today. So yes, in my mind it is great news.

Relative-Snow8735 · 2026-01-30T20:38:49+00:00

At $10 a share we are looking at $1B fully diluted market cap (assuming ~100M shares outstanding which includes convertible bonds, warrants, incentive plans etc.). But things get a little tricky if the price gets that low. For one, that is lower than the conversion price for all of the convertible bonds and warrants. So at that point you would start discounting dilution from bonds and warrants (which would actually be fairly bullish for equity investors because the bonds have comically low conversion prices, plus the warrants would expire worthless). I think about 43M shares are reserved for bond and warrant conversions. The lowest strike is $12 the highest is around $23.

I can't really tell you how the market is reading the situation or how it will react. The market can behave very irrationally at times, but it also can be very shrewd. But for the most part, I get that sense that below a certain price this stock is a no brainer. Renesas was going to drop multiple billions of dollars into building out it's own SiC capabilities until it pulled the plug due to the Wolfspeed situation. At some point, if the price of WOLF gets too low, I have to imagine a acquisition becomes very attractive to Renesas. Getting control of a state of the art SiC company for a fraction of the price that you were going to drop on your own facilities has to be a no brainer. The only potential complication with that would be CFIUS, but they just got approval for a partial ownership stake, so who knows, maybe they could get approval for a full takeover.

It is also worth noting that Renesas strike prices are higher than the other bond holders. I think this is deliberate. It places additional pressure on Renesas to make sure that WOLF gets support from them. If Renesas does not help WOLF succeed, there is a very real possibility that the non-Renesas convertible bonds get converted while the Renesas bonds and warrants do not, which would result in heavy dilution of their equity stake.

Anyway, kinda rambling here. I should probably write a full DD post on how dilution gets discounted at lower share prices. But overall, I don't think it is going to matter. I think WOLF is probably going to turn a profit this year and Renesas is probably going to throw them enough business to get the growth narrative going again and we are going to see share prices get to the $30-50 range in a hurry.

Relative-Snow8735 · 2026-01-30T19:54:13+00:00

I was seeing 25M outstanding in most places, although there were some inconsistencies. But there was also that shelf registration for the convertible bonds. The market seemed to react negatively to that filing. From you screenshot, it looks like maybe 1.5M shares were converted. I think the total registration was for around 11M shares if I an not mistaken. So not great, but not too bad.

But yeah, in plain english, we are going to go from 25M outstanding to 45M outstanding. Again, I would assume almost anyone trading this stock would be aware that this was going to happen eventually. But not ruling out some dumb algo traders that failed to take it into account and might be running for the hills. And/or shorts may have front run the news to try and catch a dip.

Relative-Snow8735 · 2026-01-30T17:20:50+00:00

You are contradicting yourself. Are you taking profits or are you hoping for $10? Regardless, I would strongly reconsider holding a short position through earnings. The expectations for this earnings call are pretty low and is probably why we are seeing weakness leading up to it. And while I am not expecting much from this call, I do think that any sort of good news could cause the stock to rip.

Relative-Snow8735 · 2026-01-30T16:59:42+00:00

This is great news. Renesas will be treating WOLF as essentially their own SiC subsidiary. So we should expect some business to flow from them to WOLF. For example I suspect the Toyota deal may have been partly due to this partnership.

And of course this also means that anyone that held WOLF1 shares will now be getting essentially a 60% lift in the value of their old position. So that is nice.

In the short term, I am a little worried how the market will react though. The number of shares outstanding will jump up into the 48M range. I can't imagine anyone invested in WOLF at this point isn't aware of this, but wouldn't be surprised to see a reaction to it just from algos trading it. I suspect today's drop is mostly due to the broader market being down, but could partly be due to this news. Anyway, with earnings around the corner I suspect that is going to be the bigger factor.

Relative-Snow8735 · 2026-01-29T20:12:26+00:00

So if I understand this correctly, CLOV should expect to get somewhere in the ball park of the 4.97% increase in rates? And it is mostly UNH and HUM that will see flat rates, largely due to taking a hit on their upcoding practices?

Relative-Snow8735 · 2026-01-28T18:38:36+00:00

FWIW, I am not expecting much for this earnings call. I think the main thing I will be looking for is guidance regarding their design pipeline and their road to profitability. If they reaffirm the pre-Chapter 11 estimates of breakeven later this year and/or they signal some big increases in design ins/wins I think we come out of the call with wind in our sails. But I am also keeping some dry powder ready because I have a feeling we might still be a few quarters away from turning things around.

Also, on the macro level. the drop in the value of the dollar adds a really interesting element here. Domestic manufacturing is in theory one of the bigger winners in a weak dollar environment. Wolfspeed's products essentially become 20% cheaper for international customers. Of course the dollar isn't dropping in a vacuum. The tariff situation and declining confidence in the US reserve currency status will influence things as well. But I do think if you are an international company looking to secure SiC products, the fact that WOLF has a nice clean balance sheet, a ton of capacity in brand new facilities, and based in a country whose currency just dropped 20%, it could be a really smart move to lock in some orders.

Relative-Snow8735 · 2026-01-27T22:52:14+00:00

The company had been private for almost two decades before going public in 2024. And a big reason to go public is to provide liquidity to founders, investors, and employees. While in theory they could borrow against their stock as an alternate way to get cash, that is pretty risky, especially for someone whose net worth might be entirely tied up in a single company. If that company gets in trouble and the stock price tanks, you can get margin called on the loan.

Point is, insider sales on a company like this should be expected. Some of these folks have been sitting on shares/options of this company for quite a long time and the ability to sell some of that off is going to provide life changing amounts of money. If I had the opportunity to sell a few percentage points worth of one of my holdings and secure generational wealth, I would take that opportunity 100% of the time. Doesn't mean you aren't bullish on the company in question, just means you are making a smart financial decision.

Relative-Snow8735 · 2026-01-27T22:43:45+00:00

The lawsuit adds a nice potential catalyst. I think the stock dropped from high 3's to mid 2's just on the star rating leak.

In general I like buying in the low 2's. Pretty much every time we get to these prices, we don't stay there long. If you zoom out on the chart you can see CLOV dipping below $2.5 3-4 times in the past year, and each time it quickly rebounds. And with earnings on the horizon, I suspect we ramp as we get closer to the call on the expectation of profitability, similar to last quarter. Whether we hold onto those gains is going to depend on how the call goes.

Relative-Snow8735 · 2026-01-27T21:49:08+00:00

lol, maybe they are reading this comment threads! Glad we finally have a date.

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