If you're anything of a cynic, Reddit's S-1 filing will ring alarm bells. There is mention of r/WallStreetBets. (Five mentions total, actually.) There's the accumulated supply of Bitcoin and Ethereum. And there's the program that gives certain power users the opportunity to buy stocks before they hit the public market.
The S-1 is a document filed with the U.S. Securities and Exchange Commission before a company goes public. It discloses everything: sales figures, risk factors, key data about the company. And it sends certain signals. In this case: I see some meme stock shit.
I can certainly imagine that corporate insiders think Reddit is the place to be for meme stocks, i.e. Yolo, etc. But here's the thing: Reddit users aren't thrilled about it.
“The beginning of the end.”
“Stop it,” wrote one r/Wall StreetBets user. “They have not proven that this user base or this data set can be monetized.”
And there was this person: “Maliciously loading into the put cannon.” (For those unfamiliar with the phrasing, you want to bet that the stock will fall. Given the use of “put cannons,” I'm going with it from that they are betting heavily. I'm trying to imagine a situation where one loads the put-gun without malicious intent, but it hasn't occurred to me.)
Okay, but that's just r/WallStreetBets! Surely there are other Reddit users who are more enthusiastic, right? At r/technology, the top comment on the IPO story is: “The beginning of the end.” There is dark speculation about what actions management might take to make the company profitable – which subreddits might be banned, by how much Users have to pay for posting, a higher advertising burden. And one user called the direct share program, which allows top users to buy in early, a “scam.” It's just Reddit running the scam.” They're also upset that Aaron Swartz was dropped as co-founder.
This isn't just a stomach ache. There are serious questions about Reddit as a company. Reddit is not profitable. Reddit has never been profitable. The risk factors section of Reddit's IPO is, as Bloomberg Opinion's Dave Lee points out, longer than the risk factors of Twitter and Facebook's IPOs combined.
“I think it’s pretty cool that Reddit is making this IPO offer to its mods and users.”
That's because Reddit is much more vulnerable to its users than other social media sites, as various Reddit rebellions have made clear. The community moderation model has advantages – it means that the 60,000 mods are more familiar with their community than the contractors. But Reddit doesn't pay them and will therefore have a harder time controlling them.
If you look closely, you can see how Reddit is trying to mitigate this risk by offering stocks to power users. Since they are shareholders, they want their own shares to remain valuable. That means they're less likely to do things that would reduce ad revenue, like abruptly shutting down a subreddit in protest.
“I think it's pretty cool that Reddit is making this IPO offer to its mods and users,” one Reddit user tells me, who asked me to identify him as Kevon. “It’s a nice little thank you that might actually have some monetary value.”
Reddit's direct sharing program works like this: Qualified users – basically people with enough karma or who have spent enough time working as mods – received an email from the company asking them to provide certain personal information to pre-register for the program. After about three weeks, everyone who signed up will receive an email letting them know whether they qualified. (Depending on how many people sign up, there may be a waiting list.) Those who qualify will receive “further instructions,” although Reddit's FAQ isn't clear about what those instructions will include.
To be honest, the share program “seems like a gimmick to me.”
Kevon is considering buying shares through the Reddit program and could buy more after the IPO if he believes the stock is undervalued.
Like Kevon, you can think of it as a nice thank you to people who have made meaningful contributions. But let's say you've spent hours of your life being a Reddit mod and you've bought stocks. There's a chance you'll lose money – and actually pay for the privilege of content moderation. Fun!
To be honest, the stock program “seems like a gimmick to me,” says Dan M., who also received the offer. After all, it's not the case that the shares are being given away for free, he says.
All of the Reddit users I spoke to for this story loved Reddit as a community. In an internet era full of SEO garbage and social media engagement bait, this is one of the bright spots. “It's a place where there are still enthusiasts and experts, where people can still learn something,” says Dan. “While the rest of the internet is a huge mess, Reddit still feels like a place to learn things and have fun,” says u/itsreallyreallytrue, who also received an invite and is thinking about joining the stock program to contribute.
But a good community isn't quite the same as a viable business. Although Reddit was founded in 2005, the S-1 notes that Reddit is “in the early stages of monetizing our business and there is no assurance that we will be able to scale our business for future growth.” The majority of Reddit's revenue comes from advertising, but it hasn't been particularly good at making money. This could be due to the laissez-faire approach to moderation; Hate speech was only banned from the site in 2020.
“Leaders look at an extremely engaged community and think, 'There has to be a way to squeeze money out of this situation.' But maybe that just doesn’t exist.”
Additionally, user interaction is not regular. Events like the war in Ukraine and the release of the video game Elden Ring – Reddit's own examples – lead to a surge in user engagement. And many users are passive and not even logged in. So targeting is a little more difficult than it might be on Instagram, for example.
“It’s Tumblr again,” says Dan, who doesn’t buy stocks. “Leaders look at an extremely engaged community and think, 'There has to be a way to squeeze money out of this situation.' But maybe that just doesn’t exist.”
Sure, Reddit is trying to diversify its revenue by selling its data to help train AI; I don't think the timing of this Google deal, just days before the release of the S-1, was a coincidence.
Reddit has also tried to make money through blockchain initiatives. It sold NFTs as another source of income. (During the height of the NFT hype, some of these assets were sold for millions – and now most NFTs are “worthless.”) Additionally, the Community Points product had to be discontinued, which was a huge loss for many whose tokens suddenly had no value was a catastrophe.
The Community Points were a gimmick; Are the stocks also a gimmick?
The forays into web3 — beyond the Bitcoin and Ethereum holdings, the value of which Reddit didn't disclose in its S-1 — make me a little wary of the stocks being offered to users. The Community Points were a gimmick; Are the stocks also a gimmick?
We can blame CEO Steve “u/spez” Huffman for these shenanigans. These aren't the only bizarre decisions he's made. He said last year's API price hike, which led to user protests, for example, was partly because “Elon Musk did it.” (How is Twitter – sorry, I mean X – doing with advertisers, spec?) His PR tour during the Reddit rebellion was frankly disastrous.
And while Huffman now believes Reddit is valuable as a corpus of training data for AI, he let his board member Sam Altman siphon Reddit data for free; Altman was and is the CEO of OpenAI. Altman is also Reddit's third-largest shareholder, owning more than twice as many shares as Huffman. Altman served as CEO of Reddit for eight days.
The S-1 lists Huffman as a risk factor, but perhaps not correctly. “Huffman is critical to the leadership of our company and instrumental in the development of our technology and strategic direction” and therefore difficult to replace, the S-1 says. The real risk factor is the number of people who think “fuck spec” is a great catchphrase, because his job depends on keeping users happy more than any other social media CEO.
“Fuck Spez, fuck Elon, fuck Sam Altman.”
Well, many of these users don't seem very happy with the IPO and expect Huffman to ruin the site. “I don't actually see anything good about Reddit going public,” Dan M. told me. “Not to sound dramatic, but it kind of feels like the final nail in Reddit's coffin after years of poor quality.”
Kevon, who told me he's considering investing, says Huffman was overpaid. (The filing says Huffman earned $193 million in 2023.) He was surprised that Huffman earned so much while the company was making losses.
u/itsreallyreallytrue was more succinct. “Technical narcissistic CEO vibe,” he said of Huffman. “Fuck Spez, fuck Elon, fuck Sam Altman.”
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