Why Is Reddit Going Public?

Reddit, the chaotic platform that is synonymous with Internet discourse, is set to go public on March 21, in an IPO that is expected to value the company at $6.4 billion. Why is it that a company that has forged its identity around deliberately bucking trends decided to go public?

Why Is Reddit Going Public?

Reddit is set to go public tomorrow. Often called the “front page of the internet” for its contributions to internet culture, the company is set to raise as much as $750 million in an IPO (initial public offering) where nearly 22 million shares are being priced at $31 to $34 and will be traded under the ticker “RDDT” on the New York Stock Exchange. The company is aiming for a market capitalization of over $6.4 billion, and will be the first internet and social media company to go public since Snap (parent company of image sharing social network Snapchat) in 2017.

Concerns abound however, about the quality (and utility) of the company’s service and its profitability. When a company goes public, it owes a legal and fiduciary obligation to its investors for maximizing revenue and profits.

Part of Reddit’s appeal to long time users however, has always been that it has ducked many of the monetizing trends that have defined the social media landscape over the last decade and been the hub for internet discourse. That has often resulted in hilarious situations, such as the ‘meme stock’ frenzy that broke out in 2021, where users on the subreddit (the name for a forum on Reddit) r/wallstreetbets orchestrated a short squeeze of the video game retailer GameStop’s stock, sending the stock price skyrocketing from around $15 to $500. 

Reddit’s freewheeling attitude towards moderation bucks the social media trend; unlike Meta, the owner of Facebook and Instagram, Reddit relies on a decentralized approach for content moderation, where users volunteer to curate subreddits. This has allowed right-wing and other extremist groups to host discussion forums on the platform, a problem that Reddit sought to correct by introducing a new set of content rules in 2020. One of the subreddits that got closed down as part of the new rules was r/The_Donald, Donald Trump’s community of loyal supporters and acolytes.

This unique place on the internet has meant that while Reddit has been a popular website, and has a loyal group of users, it has not managed to turn a profit in nearly two decades. It lost nearly $191 million last year, as per the IPO filings. Investors might find some solace in the fact that the company spent nearly 55% of its $804 million revenue in 2023 – or a whopping $439 million on research and development.

Part of how Reddit is carrying forward its unique identity into life as a publicly traded company is a “directed share program” (DSP), allowing chronically online power users and moderators to buy preferential stock in the IPO, a privilege usually reserved for large institutional investors. The company aims to offer its long-time users a stake in its success as a public company, albeit only 8% of the shares in the IPO are being offered as part of the directed share program.

Will it ever make money?

Part of Reddit’s business plan is to offer its treasure trove of conversations to Google, as the internet search giant seeks to catch up to sector leaders in the technology of the moment, artificial intelligence (AI). In a content licensing deal valued at over $60 million annually, Reddit is planning on allowing Google to train its artificial intelligence models on the conversations that take place on the platform. With multiple lawsuits challenging the practice of AI models freeloading on proprietary content, operators of AI large language models have been eager to sign licensing agreements.

The Federal Trade Commission has opened up an inquiry into the deal however, seeking to get a better handle on a commercial agreement that could have massive implications for both consumer data privacy and competition. “Given the novel nature of these technologies and commercial arrangements, we are not surprised that the FTC has expressed interest in this area. We do not believe that we have engaged in any unfair or deceptive trade practice,” was the company’s response in a filing.

Reddit’s plan to go public seems to be driven therefore, in part by the AI boom that is sweeping the technology sector. The company’s CEO Steve Huffman believes that the company has much to gain “by behaving like an adult company.”

Many worry however that the platform’s appeal has lay in its relaxed attitude towards content moderation and user anonymity, and that efforts to change those features could spark a user revolt and change the underlying fundamentals of the company.

Maybe the company's own stock will be the latest meme stock. It won't be long before we find out.

Hamza Hashim serves as an Assistant Editor for The Friday Times, and is an educator. He is an alumnus of Swarthmore College.