- By Tom Gerken & Mariko Oi
- ` News
March 21, 2024
Updated 1 hour ago
image source, Getty Images
Shares of social media site Reddit closed up 48% on the company's first day of trading on the New York Stock Exchange.
On Wednesday, Reddit said the shares were priced at $34 each, near the high end of the market's usual range.
At the close of trading on Thursday, shares stood at $50.44, valuing the company at more than $9 billion (£7.1 billion).
It was one of the largest IPOs of a social media platform ever.
It put 22 million of its shares up for sale and, in an unusual move, offered some of the shares to the platform's users, although it did not disclose how many accepted the offer.
Founded almost 20 years ago, Reddit has grown into one of the most popular websites in the world.
It is an online forum where users can discuss topics that interest them. According to the company, it had more than 73 million users at the end of December 2023.
But the filing brings to the fore a question that has been simmering behind the scenes for years: How can a company make money from essentially random conversations?
Reddit costs nothing to use – browsing, posting, and commenting on the site is completely free.
It failed to make a profit for 20 years, and some may wonder why Reddit is worth billions if it has never made any money.
A few things were tried, and a major visual change in 2017 made the site more user-friendly for advertisers.
But it appears Reddit's path to profitability, powered by AI models, has an end in sight.
That's because companies like OpenAI, the developer of ChatGPT, pay for the data from these random conversations.
Google is believed to have paid Reddit $60 million for the right to scan discussions for nearly two decades to make its AI more human-like – and Reddit said it plans licensing deals worth more over the next two to three years than $200 million.
In February, Reddit said it lost $90.8 million in 2023, so money from artificial intelligence (AI) companies could make the platform profitable.
Inquiries and allegations
But there are also many concerns on Reddit.
On the one hand, the social media platform is increasingly being scrutinized by regulators.
The US Federal Trade Commission (FTC) is already reviewing how Reddit licenses its data for AI models – regulators generally don't like it when big tech companies sell user-generated data.
Although the platform anticipated this, it may have been blindsided by a lawsuit from mobile phone company Nokia, which accuses it of infringing its patents.
“We will investigate their claims,” Reddit said, adding that the company has faced similar allegations in the past.
Perhaps most significantly, in its filing with the U.S. Securities and Exchange Commission (SEC), Reddit described its users as a potential risk associated with owning shares of the company.
“If we fail to grow or retain our user base, or if user engagement declines, our business … and our prospects will be harmed,” the filing said.
“If Redditors continue to fail to contribute content, or their contributions are not valuable or engaging to other Redditors, we may experience a decline in the number of Redditors accessing our products and services… which could result in the loss of advertisers.”
Reddit's user base is known to react with frustration to changes on the platform.
Such is their distaste for the changes made in recent years that a search on the platform for CEO Steve Huffman – username u/spec – shows that Reddit users' comments are usually preceded by profanities when they mention him .
And while there have been efforts to create an alternative platform, one of Reddit's biggest advantages is something it doesn't have – a significant competitor.
While Redditors may have concerns, the social media platform appears to be in relatively safe territory by tying its stock market value to its users as long as they have nowhere else to go.
Comments are closed.