Reddit - The Front Page of Internet
Reddit is one of the oldest active social media platforms, after massive highs and lows they have created their place in mix. Read about what current crises at Reddit means for their IPO plans.
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Reddit, founded by Alexis Ohanian, Chris Slowe, Steve Huffman, Aaron Swartz, is an social news aggregation, content rating, and discussion website which was formed at Y Combinator’s very first batch in 2005.
Reddit’s core product is a platform for social news aggregation centered around communities of “Redditors” who want to share content about a specific topic. On average, about 1 million posts are added to Reddit each day.
Reddit was sold to Conde Nast in 2006 by Huffman and Ohanian for $10 million to $20 million, Huffman later said that he regretted the decision, not realizing how popular the site would become. As of 2019, the company was worth $3 billion.
After their first startup idea was rejected, MyMobileMenu, Alexis Ohanian, and his fellow founders started work on “the front page of the internet.” That project, an idea that came from Paul Graham, turned into Reddit, one of Y Combinator’s most successful startups.
Reddit’s story is truly unique, the startup was sold in just a year since its inception to Conde Nast, and most of the founding team stayed for 3 years to serve their contract and then left to do other things. In 2011, the startup was again an independent entity and some of its founding team came back to finish building what they started - not a lot of founders get a chance to do that after selling their company.
Ohanian has founded several other startups and venture capital firms, including Breadpig, Hipmunk, Das Kapital Capital, and Initialized Capital. Steve Huffman, Reddit’s second co-founder, served as CEO of the company until 2009, then returned to the role in 2014 with Ohanian as Executive Chairman.
Chris Slowe is still with Reddit as its CTO (and is a former CEO) but spent some years away from the company before returning with Ohanian and Huffman. Reddit’s fourth co-founder, Aaron Swartz, arrived late to the party when his own startup, Infogami, merged with the company, he was also a part of Y Combinator’s first batch with the Reddit Crew.
Revenue
According to estimates, Reddit made roughly $510M in 2022, up 36% from 2021, when it made $375M. Reddit’s growth over the last 2 years has largely come from its growing advertising business—spending on Reddit by large advertisers increased 31% in 2022, even as overall, advertising spending declined through each of the last 6 months of 2022—as well as from the growth of its $6 per/month Reddit Gold premium subscription product.
Among the major social media platforms, only TikTok (89% growth) grew ad spending more than Reddit in 2022—Meta grew 22%, Snap grew 16%, Pinterest grew 7%, and Twitter declined 13%.
Secondary Market Performance
After raising a $300Mn round from a16z, Sequoia, Tencent, and Fidelity in 2019 at a $3Bn valuation, Reddit was back in the market amidst the funding frenzy in 2021. The company raised $260Mn from Vy Capital at $6Bn valuations and another $410Mn from Fidelity at $10Bn. The funding rounds were reflected in Reddit’s secondary market stock price, which was averaging around $60 per share, but the subsequent funding winter resulted in the market price crashing to ~$15 in June 2023. In the secondary markets, the sheer brand power of Reddit is helping to drive demand.
API Controversy and Upcoming IPO
Reddit has been a private company for a long time, and its early investors want to get out, so the company is building its balance sheet for a strong IPO performance in the coming months. Simply put, they need to start making a lot more money quickly, so in April 2023, Reddit announced it would charge for its API services. Speaking to The New York Times’ Mike Isaac, Reddit CEO Steve Huffman said, "The Reddit corpus of data is really valuable, but we don't need to give all of that value to some of the largest companies in the world for free.”
A move that resulted in a massive protest by Reddit’s third-party clients and was termed as extortion and an existential risk for some third-party clients like Apollo and RIF(Reddit is Fun). In protest, some of the biggest subreddits also went private and marked themselves as NSFW to impact Reddit’s ad revenues - 8500 subreddits went private by June 13. The issue is still unsolved, but the cusp of the issue is clear, Reddit needs to find ways to bring in a lot of revenue before its planned IPO. Due to the current controversy, even if Reddit brings in some revenue from the corpus of data it collects, the loss in advertisement revenue will surely burn a massive hole.
Top Stories
Databricks signed a definitive agreement to acquire OpenAI competitor MosaicML for $1.3 billion. According to reports, MosaicML, a San Francisco-based generative AI platform, has raised $64 million to date since launching in 2021.
Unicorn social app IRL to shut down after admitting 95% of its users were fake, an internal investigation by IRL’s board of directors found that 95% of the app’s reported 20 million users were “automated or from bots.”
TikTok is discontinuing TikTok Now, an in-app feature and standalone app that mimics BeReal. BeReal invites users to take a front and back camera photo at a random time every day, designed to capture a more authentic picture of what our friends are doing.
“Thought Leadership”
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