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Reddit's IPO in 2024: A Closer Look Before Going Public in March 2024
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Reddit, often hailed as “the front page of the internet,” is a platform where millions of users dive into anything from breaking news and sports to music and history. As a hub of endless conversation and authentic human connection, it caters to a wide array of interests through its thousands of communities. With a user-friendly interface that encourages active participation, Reddit operates on a simple yet powerful mechanism where users post, comment, and vote, making it a unique blend of social media, news aggregation, and a forum. There’s rumors swirling about its IPO in 2024, reportedly eyeing a valuation of $5 billion, so let’s take a closer look at what we can expect from it.
Key Insights
Community-centric platform: Reddit’s success is among other things driven by its subreddits, fostering a unique blend of social media, news aggregation, and forum-like interactions.
Active user engagement: With over 70 million daily active users and more than 100,000 active communities, Reddit demonstrates a vibrant and growing platform.
Anticipated $5 billion IPO: Reddit’s rumored IPO in March 2024 under the ticker “RDDT” – the largest public listing in the social media space since Snap in 2017 – is expected to underline its substantial impact on digital and social media landscapes.
What is Reddit’s Business Model?
With the mission to “bring community, belonging, and empowerment to everyone in the world,” Reddit’s ecosystem is built around “subreddits,” which are communities organized by interests. It’s essentially a platform where people come to explore their interests, learn, express themselves, create, and understand other people’s experiences and perspectives.
“As a way of capturing the richness, scale, diversity, and infinite possibilities for discovery encompassed by Reddit, I often compare it to a growing city. Today, our city has more than 100,000 unique neighborhoods, which we call subreddits, and each has its own slang, vibe, sense of humor, and both written and unwritten rules. We did not create these communities. Reddit’s users did. Our role is to develop and maintain a common infrastructure that helps keep the city secure and thriving, with space to grow.” – CEO, Steve Huffman
Here’s a quick overview of how the platform functions:
Post: Users share content by posting stories, links, images, and videos into subreddit of choice, sparking discussions and interactions.
Comment: Posts serve as the starting point for comments, where users can engage in discussions, share insights, or enjoy humor related to the post.
Vote: The voting system is central to Reddit’s functionality. Users upvote posts and comments they find interesting, informative, or entertaining, while downvoting those that don’t contribute to the conversation. This democratic approach ensures that the most valued content rises to the top.
As to how Reddit is making money, it operates a multi-faceted business model, primarily focusing on advertising, premium memberships, and the sale of digital goods like Reddit Coins and NFTs.
The advertising part of the revenue model works in such a way that advertisers can target specific subreddits or the broader Reddit audience through sponsored posts and sidebar advertisements.
Then we have the premium memberships, which enhances user experience by removing ads, providing monthly Reddit Coins, and granting access to a premium-only subreddit.
And lastly, there’s the selling of Reddit Coins and virtual goods. Users can purchase and use these to award posts or comments they find particularly valuable, and its recipients gain benefits such as temporary access to premium features or boosts in visibility.
Will March-Something be The IPO Date of Reddit?
Amidst its continued growth and the expansion of its online community, Reddit is preparing for a significant milestone. The company filed its IPO prospectus with the SEC on 22nd of February 2024, and is reportedly planning for its IPO under the ticker “RDDT” in March. The expectations are set around a valuation of $5 billion, making it the largest public listing since Snapchat in 2017.
An interesting part of the public offering includes Reddit’s desire to create the sense of ownership its users have over the communities they create on the platform to be reflected in real ownership – essentially having its users as shareholders. Consequently, Reddit even invites qualified users and moderators who meaningfully contributed to the platform, to buy shares through a directed share program.
“I have never been more excited about Reddit’s future than I am right now. We have many opportunities to grow both the platform and the business, the latter through advertising, monetizing commerce on the platform, and licensing data. Our work to make Reddit faster, easier to use, easier to moderate and govern, and simpler to navigate and find relevant communities is driving growth today and will continue to be our focus into the future.” – CEO, Steve Huffman
Reddit by the Numbers
As stated in the prospectus, Reddit as of December 2023 boasted over 73 million daily active (unique) users, contributing to and engaging with over 100,000 active communities. The number of daily actives is up 27% year-over-year (y/y), and comparing it to the around 500 million (now 2.1 billion) daily actives Facebook had at the time of Meta’s IPO in 2012 is an interesting exercise.
For further reference, Snap reported having 414 million daily actives globally in Q4, up 10% y/y. Zooming out a little, Reddit has increased its quarterly average daily actives by 33% and quarterly average revenue per user (ARPU) by 138% since Q1 2021.
Looking closer at the ARPU number, Reddit reached $3.42 in Q4, which is 26% of Facebook’s unmatched worldwide ARPU and basically in-line with Snap’s $3.29. Despite a quite decent ARPU, Reddit is currently not profitable. In 2023, the company did $804 million in revenue, up 21% y/y, with a negative $140 million in EBIT (an improvement of $32 million y/y).
TAM-wise, Reddit themselves stated that its “total addressable market globally from advertising, excluding China and Russia, to be $1.4 trillion.”
Conclusion
Reddit’s unique structure and the participatory nature of its communities have established it as a digital phenomenon, where users can find a niche for virtually any interest. The platform’s success lies in its ability to foster genuine human connection through shared interests and discussions. As Reddit gears up for its rumored IPO, the platform stands on the brink of a new chapter that could further solidify its position as a central figure in the digital world, continuing to offer a space where millions can dive into anything that piques their curiosity.
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