5 takeaways from Reddit’s public filing

5 takeaways from Reddit’s public filing

Reddit filed to go public on Thursday, becoming the first major digital platform to do so since Pinterest in 2019.

The site, which was founded in 2005, is rumoured to have been pursuing an initial public offering (IPO) for years. Recently, the company has taken steps to better cater towards advertisers, adapting its user interface over time and tightening access to its API.

Reddit now bills itself as a “community of communities” and a place for brands to speak directly to consumers with specialist interests.

In filing its S-1 form to the US Securities and Exchange Commission, Reddit for the first time publicly disclosed key financial information about the health of the business.

Here are five takeaways.

Reddit is growing revenue, but is still in the red

Reddit generated $804m in revenue in 2023, up 21% from 2022.

The company has never turned a profit in its 19-year history and this was true again in 2023, when its adjusted Ebitda (the company’s measure of profit) was a loss of $69.3m. This was at least better than 2022’s loss of $108.4m.

Net loss totalled $90.8m last year — also an improvement on 2022, when net loss totalled $158.6m.

For his work, CEO Steve Huffman received a compensation package of $193.2m in 2023, including a salary of $341,346, stock awards totalling $98.3m and stock options valued at $93.8m.

Advertising is the majority of Reddit’s business…

All but $15m of Reddit’s 2023 revenue came from advertising.

“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,” said Huffman in a statement accompanying the filing. “Advertising on Reddit is rapidly evolving and we are still in the early phases of growing this business.”

The company estimates its total addressable global market for advertising, excluding China and Russia, will reach $1.4tn by 2027.

Podcast: Why social media is all about community now – with Reddit’s Paul Peterman

…but its growth strategy is more multifaceted

Reddit described its advertising model as “still in the early phases”, noting that there are paths to further monetisation in part through improved contextual and interest-based opportunities in its ad platform and expanded ad formats and offerings yet to come.

The company also plans to diversify its revenue sources beyond advertising to include data licensing and developing a user economy.

Regarding the former, Reddit struck a $60m deal allowing Google to access its AI large language models (LLMs) to train on Reddit’s posts. It expects to play a further role in providing content to train LLMs in the future.

On the latter, Reddit noted that commerce “has already emerged on our platform organically”, with artisans selling and promoting creations in part through the platform and user-created marketplaces popping up to sell items like watches, cameras and more.

Reddit intends to support the user economy “by providing our users and creators with the requisite tools and incentives to drive continued creation, improvements and commerce”.

These include creating a contributor programme that grants monetary benefits to developers who “generate value” on the platform and developing an official community marketplace for which Reddit would receive a portion of primary sales and royalty fees.

Huffman has confidence in user-generated content

Like other social media companies, Reddit has had to and will have to reckon with rising concerns over online safety. This is even more true when the company goes public and has to answer to shareholders.

For his part, Huffman expressed a high degree of optimism in the Reddit community.

“One of the founding principles of Reddit was that it be a real place cultivated by real people, instead of a fake place manicured by editors and other gatekeepers,” he said, drawing a distinction between Reddit and more traditional online publishers.

“Reddit is not a social media platform optimised for self-display; it is a community that rewards candour and honest advice. This is why millions of people trust Reddit for everything from relationship guidance to in-depth product recommendations (and add ‘reddit’ by name to their searches for virtually anything).

“We have confidence in the magic of human-curated organisation, creativity and generosity. Reddit enables these human virtues, which means we can mostly stay out of the way.”

He compared the site to a “growing city” with more than 100,000 unique neighbourhoods (subreddits), “each [with their] own slang, vibe, sense of humour, and both written and unwritten rules.”

Extending the metaphor and laying out the company’s own expectations for responsibility over user-generated content, Huffman said: “Our role is to develop and maintain a common infrastructure that helps keep the city secure and thriving with space to grow.

“Sometimes, people break the rules, do harmful things and force us to devise new rules — just as in physical cities. But our core commitment remains unchanged: to make Reddit as healthy, accessible and enjoyable as possible.”

Reddit is offering stock to top posters — but users are sceptical

Reddit has reserved 1.3m class A shares (about 1%) to “fund community-related programmes that empower Redditors to bring their ideas to life”. The company has also invited “qualifying users and moderators” to buy shares in the IPO alongside other investors through a directed share programme.

In a Reddit thread discussing the news, top commenters expressed a high degree of pessimism about the company’s long-term outlook, with many going as far as to say they were more likely to short the stock than invest in it.

“RIP Reddit as we knew it,” wrote one user, who predicted an increase in ads and a potential crackdown on “NSFW” (ie. pornographic) content that could risk “enshittifying” the website.

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