February 28, 2024
📰 FEATURE STORY
Will Reddit’s IPO be a success?
In the world of social media, Reddit occupies a curious corner. The message board site is often the go-to for terminally online folks and the originator of plenty of internet discourse that eventually spills over to Twitter and Facebook. And as with any social media offering, it’s had its fair share of controversies over the years. Now, it’s taking a big step.
The company has filed for its long-anticipated IPO. It would make Reddit the first major social media company to go public since Snapchat in 2017. One unique thing about this IPO is that some of its most fervent users could buy some shares. That’s typically only meant for institutional investors. Will this IPO be a success? Is it a good idea?
Context
Reddit is a news aggregation, content rating, and discussion website. The San Francisco-based company was founded in 2005 by Steve Huffman and Alexis Ohanian, two University of Virginia students. The goal was simple – a website where people could discover and share interesting content.
The inspiration was a site called “My Mobile Menu” where people could order food from their phones. The site quickly grew its user base and was bought by media company Condé Nast in 2006. While Huffman and Ohanian continued to work together, both left the company in 2009 to pursue other ventures.
As the site continued to evolve and grow, the community was unhappy with some of the policies. Reddit began blocking out some moderators. Things were looking bad. Huffman was offered the chance to return as CEO, and he took it in 2015. Huffman and Ohanian split in 2020 over differences in handling hateful content on the platform.
What sets Reddit apart is its community-driven approach to content sharing and discussion. Subreddits are communities focused on specific topics where users can post links, images, and text. Its early years were the go-to for influential bloggers and programmers. It was seen as the place for tech-related news and discussions. Eventually, as more people came on board, politics, sports, entertainment, etc, sprung up.
Reddit has managed to carve a niche for itself on the internet. Journalist Christine Lagorio-Chafkin, who wrote about the company in a book, described Reddit as “the least known and most influential site on the internet.” It’s the fifth most popular site in the US, with 330 million monthly users. It’s interesting that Huffman, for example, is lesser known than Jack Dorsey or Mark Zuckerberg.
The company filed for an IPO nearly three years after it hired its first Chief Financial Officer. The company makes money through advertising and premium membership offerings. Users can also buy virtual gifts and awards to give to other users to show support and appreciation. While the company hasn’t been profitable, will the IPO be successful?
VIEW: A good and necessary step
It’s true that the company is barely monetised and doesn’t make a lot of money. But that’s about to change. Reddit announced a deal to license its content to Google to use in AI training for about $60 million a year. Both companies are also looking to partner up to include Reddit material directly in Google’s interfaces. So, you could see Reddit content displayed across Google products. The company also has other monetising opportunities lined up through e-commerce offerings.
Like any social media platform, Reddit has faced its share of controversies on content moderation. It reversed its controversial position on moderation after a user revolt and has updated and more strictly enforced its policies in the past few years. It has become a more attractive place for advertisers and marketers.
The platform has a very loyal user base that’s unlikely to leave anytime soon. It’s one of the most visited websites in the world every day. In its recent filing, the company reported 73.1 million daily active users in the fourth quarter of 2023. That’s a 27% increase over the past year. With still-yet-unknown licensing deals that the company said it’s pursuing, the platform going public is the logical next step.
COUNTERVIEW: A risky proposition
Even while filing for its IPO, Reddit cautioned potential investors on challenges and risks – Large Language Models (LLMs). There’s a future where these AI systems could aggregate and synthesise the site’s content and let people view it without visiting the site or seeing advertising. If it wants to court big brands, it’s going to be a tough road ahead with Meta and Google’s dominance. Advertisers don’t want to be associated with anything harmful. That’s tough for Reddit since it’s heavily dependent on community-based moderation.
As news of the IPO trickled through, some Redditors weren’t thrilled. Across some subreddits, the mood was sombre. One top comment read, “The beginning of the end.” To make the company profitable, there’s some worry that some subreddits might be banned or that there’ll be more ads. The bottom line is the company hasn’t been and isn’t profitable. In its IPO filing, the risk factors section is longer than Twitter’s and Facebook’s combined.
Reddit’s heavy dependence on its community is a double-edged sword. While it means the moderators are more familiar with the communities, they aren’t paid. So, Reddit could have a hard time controlling them. While many see Reddit as the only social media bastion across an internet filled with garbage, it isn’t the same as a viable business. User engagement, while steady, isn’t regular. If you’re an advertiser, targeting on Instagram, for example, is much easier than on Reddit.
Reference Links:
- The Rise of Reddit: How the Platform Became a Phenomenon – The Brand Hopper
- Is Reddit the Most Influential Site on the Internet? – Knowledge at Wharton
- Reddit hasn’t turned a profit in nearly 20 years, but it just filed to go public anyway – CNN
- Reddit IPO: Company’s biggest risk is its reliance on unpredictable users – Moneycontrol
- Can Reddit Survive Its IPO? – New York Magazine
- Reddit Files to Go Public, in First Social Media I.P.O. in Years – The New York Times
- A lot of Redditors hate the Reddit IPO – The Verge
What is your opinion on this?
(Only subscribers can participate in polls)
a) Reddit’s IPO will be successful.
b) Reddit’s IPO won’t be successful.
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