The social media platform and self-proclaimed “front page of the internet”, Reddit Inc, has shocked markets with a highly successful initial public offering on the New York Stock Exchange, hitting the top of its marketed range with a A$1.1 billion (US$748 million) raising.
That netted the new stock a US$5.4 billion market value, which has since grown even more as the first day of trading on the NYSE drove Reddit stocks up 48% to $50.44 per share.
Is Reddit profitable?
Reddit’s stellar IPO was even more of a shock to those familiar with the company – the social media platform has not turned an annual profit in a single year since its launch in 2005.
Last year, in an attempt to monetise its platform more efficiently, the social media giant caused a small revolt among its own user base when it forced the removal of all third-party apps with access to its content feeds.
The company implemented prohibitively high costs for any third-party app wanting to use its application programming interface (API) to access its content feeds, effectively shutting them out altogether.
Controversially, many of these third-party apps featured accessibility features the official Reddit app still does not support, excluding an entire subset of the user base.
In response, large swathes of the user base instituted a self-imposed “blackout” in an attempt to remove access to Reddit’s main product – user content and attention.
Reddit is different from other social media platforms in that the vast majority of content is user generated in an anonymous or semi-anonymous format.
Businesses are present and do advertise on the platform, but you’re much more likely to find posts about how to DIY your kitchen, in-depth analysis of the latest TV phenomenon, or legal advice on tree laws in your local area.
A Reddit comment chain discussing potential damages for a user’s destroyed trees.
The user-led blackout didn’t achieve much, though, with most subreddits (the individual forums users can subscribe to on the Reddit website) returning to normal operation (or being replaced) within a week or two.
That said, the hostility toward the IPO and Reddit’s attempt to monetise the platform has not abated; three thousand members of the WallStreetBets subreddit – the same subreddit that created the Gamestop stock pumping controversy – agreed with a comment claiming the IPO is a “pump and dump” scheme.
Hundreds more suggested shorting the stock while simultaneously producing content distasteful to advertisers to actively drive them away from the platform.
Google data licensing deal
All this to say, Reddit’s value isn’t in the day-to-day profitability of its website, but rather the massive value inherent in the content production, data sharing and simple attention of its millions of global daily users.
Reuters reported last month that Reddit had signed a US$60 million data licensing deal with Google.
Reddit and Google declined to comment on the deal when Reuters made inquiries.
The platform relies almost exclusively on advertising for revenue – advertising has made it increasingly difficult to differentiate from user content in a deliberate attempt to integrate company content into what has been a purely user-driven social media platform until now.
The organic, anonymous and casual nature of most content on Reddit also makes it very attractive to AI companies who wish to train their generative models on genuine user content.
At the same time, the anonymous nature of the platform encourages users to reveal personal and often sensitive information about themselves, unaware it can still be used to identify them with enough data points – anonymous username or not.
Comments from co-founder and CEO Steve Huffman indicated the advertising angle will be one Reddit is pursuing aggressively.
“Advertising is our first business, and advertisers of all sizes have discovered that Reddit is a great place to find high-intent customers that they aren’t able to reach elsewhere,” Huffman said.
“Advertising on Reddit is rapidly evolving, and we are still in the early phases of growing this business.”
It remains to be seen whether Reddit can maintain the momentum of its shockingly strong IPO and capitalise on its potential advertising revenue – perhaps in spite of its user base.