Thursday, U.S. time, “American version of Tieba”RedditIt was finally listed on the New York Stock Exchange under the stock code "RDDT". Its shares are expected to open 53% above its initial public offering (IPO) price, valuing the social media platform at $9.8 billion. Reddit is the first major social media company to go public since Pinterest in 2019. At the end of 2021, Reddit failed to hit its IPO.
According to media reports, Reddit submitted an IPO application in January this year. The financial report shows that Reddit's operating income in 2023 will exceed US$800 million, a year-on-year increase of more than 20%, but it has not achieved profitability for the whole year, and its adjusted EBITDA loss for the year is approximately US$69 million; however, people familiar with the matter revealed that Reddit achieved profitability in the fourth quarter, and the specific figures have not yet been made public.
01
Fossil-level Internet products
What is Reddit? In a word, it is the American version of Tieba.
According to Reddit's official definition, it is not a "social network" but a "community network." There are more than 100,000 community sections with different themes active on the platform - called "subreddit", covering everything from sports and literature to blockchain, stock trading, chatting and popular science. The "r/" in front of the section name is Reddit's iconic symbol. Each community is managed by a moderator, who formulates rules, maintains order, and organizes activities. Users can freely post, comment, or vote for other people's speeches.
Other than that, there doesn’t seem to be anything mysterious about Reddit. Compared with today's algorithm-recommended and AI-driven Internet products, Reddit's form is really primitive. The sorting of content on the platform mainly relies on users' "likes" and "dislikes", which is almost the same as the forums in the early days of the Internet. Its interface design also has a strong flavor of the ancient Internet. Users do not rely on attracting fans to become a big V. Their influence comes from "Karma", which is a score based on posts and comments. The more content a user contributes to the community and is recognized by other users, the higher his Karma value, and the easier it is for his content to be promoted to the front.
02
World Class Meme Making Machine
It is such a fossil-level community that has experienced rapid growth, the departure of the founder, and the return of the founder. It has passed through the smoke of the PC era and the mobile Internet era, and has come to today, and is becoming more and more vibrant.
As of December 2023, Reddit has 73 million monthly active users, with an average opening time of about 16 minutes. Reddit's peer Facebook has been abandoned by GenZ young people, but Reddit's users are still young: 64% of users are 18-29 years old, and 63% have a college degree or above.
One of the important reasons is the "meme culture" that has grown up on Reddit - after all, whether they are the first generation of netizens born in the 1980s or the natives of the Internet born in the 10s, who doesn't love to mess around.
In Reddit, a huge square with rich themes, countless intensive exchanges and collisions take place every day, and memes emerge one after another. As users bring memes from a certain community section to other communities and other Internet platforms, Reddit memes spread to the world. The sad frog and Drake's Rickrollmeme that have taken the internet by storm are both classic memes that became popular on Reddit.
If memes are just people having fun in the virtual world, what is more influential are "meme concept stocks" and the 2021 war that will drive retail investors crazy on Wall Street.
r/wallstreetbets (Wall Street Casino) was originally a general stock discussion board established in 2012. After the outbreak of the new crown epidemic, the number of users of the WSB board soared from less than 45 to nearly 2 million, forming a retail force that cannot be underestimated. At the beginning of 2021, user Keith Gill complained in a post about the "conspiracy" of financial institutions to short the long-established game chain Game Station. Under his call, a large number of users allin Game Station, vowing to fight Wall Street to the death.
After about a month of offensive and defensive battles, Reddit retail investors plunged Wall Street. Not only did they push GameStop's stock from $4 to $400, they also helped double the share prices of BlackBerry, AMC and other victims who were being shorted by Wall Street. In the end, the U.S. government took action to stabilize the situation. However, the short sellers of GameStop have lost nearly 20 billion U.S. dollars. Among them, Citron Consulting, the largest short seller, directly announced that it would withdraw from the short seller industry.
After this battle, WSB users formed a team, financial giants sweated, and Reddit reaped the benefits. The WSB section soared by 6 million new users in one month, and Reddit's advertising revenue exceeded 100 million yuan for the first time in the second quarter of that year, earning both fame and fortune.
03
“Disliked” IPO
Although Reddit has shown huge influence on the Internet and the real world, its IPO process is not optimistic.
According to people familiar with the matter, Reddit will be valued at US$15 billion when it launches the IPO process at the end of 2021. Now some private equity funds believe that US$4.2 billion to US$4.8 billion is more reasonable. As of yesterday, the valuation was set at US$6.5 billion. In short, the price is still cut down to the knees. Putting aside the current market sentiment, Reddit’s lack of imagination for commercialization is the biggest problem for investors.
According to statistics from CNBC in 2019, Reddit's ARPU (average revenue per user) is approximately $0.3, while Pinterest is $2.9, Facebook is $7.37, and Twitter (now X) is $9.48. Fun people love to watch fun, but when it comes to commercialization, it’s not a good idea.
Like most content communities, Reddit relies on the same things to make money: advertising and paid memberships. The vast majority of revenue comes from advertising.
It’s not uncommon for advertising revenue to support building products. Social networking sites such as Facebook and X have become the world’s largest online advertising platforms, but Reddit has some inherent flaws in this regard.
The first is the anonymity mechanism of the forum.Today, most Internet products require users to register with their real names or bind their email addresses. Reddit, in order to ensure an atmosphere of free speech, allows users to register anonymously. As a result, the user information that advertisers can obtain is very limited. For advertisers who want to accurately select target users, the ROI of advertising on Reddit is not high enough.
Secondly, and what advertisers are more worried about, is the “security” of the Reddit platform.The Reddit platform is famous for its laissez-faire approach to content posted by its users, and there is an endless stream of content that includes scoldings, extreme remarks, and inappropriate content for children. Many advertisers are worried that such a community atmosphere will affect their brands, so they also take a wait-and-see attitude towards Reddit.
In order to speed up the pace of commercialization, Reddit has made many attempts in recent years. For example, it acquired TikTok’s competing product Dubsmash to enter short videos, released live broadcast functions, used cryptocurrency as community points for users, and so on. Unfortunately, these attempts made little splash.
In the era of AIGC, Reddit seems to be seeing a new dawn. In the past, Reddit opened its API interface to external developers for free, and some AI companies took a fancy to its high-quality chat data to train their own language models. In order to prevent technology companies from free sex, Reddit announced in July 2023 that it would charge third-party developers $12,000 for every 50 million API calls.
Unexpectedly, this move accidentally injured friendly troops. A large number of apps that make Reddit third-party applications - such as one of the most well-known appsApollo——Shut down because it cannot afford the high API interface fees. Reddit users were also very dissatisfied with this. At one time, more than 8,000 forums were closed in protest, and the entire platform was almost shut down. The CEO had to stand up and explain the whole story, recount his family history, and tell users and partners that "the company must first make money to survive." Subsequently, although most forums gradually resumed operations, the confrontation also damaged their vitality.
However, Reddit seems to be quite determined on the road to API charging. Just in February, the company announced a cooperation with Google, licensing it to use Reddit data to train AI models for an annual fee of US$60 million. This news is obviously intended to boost market confidence before the IPO. As for the effect, it depends on how investors vote with their feet.
04
Can community spirit and making money be reconciled?
In 2021, WSB has just won the battle to defend retail investors, and forum users made bold statements: When Reddit goes public, we will also drive Reddit's stock price to the sky like today!
Later, Reddit was really about to go public. When the CEO was interviewed, he hoped that all Reddit users would hold shares, but the users said: Yue, don’t mess with me!
how so? In many forums on Reddit, users have posted posts discussing their views on Reddit's listing. Almost every post with high likes expresses deep concerns: After the IPO, if companies want to make profits, they will definitely "listen to investors" and ignore the voices of users. What will follow is more and more advertising and content review, loss of freedom of speech, loss of precious NSFW content (NotSafeForWork, content not suitable for browsing at work, you know)... In short, the community spirit of Reddit is lost.
Looking around, there have been similar debates on the road to commercialization of every content community. Are the high-quality content and high-quality friendly neighbors that users love and the desire of enterprises to make money to survive and expand their scale really always be at opposite ends of the balance?
One of Reddit’s competitors and now popularDiscord, is still in the honeymoon period with users/investors, and only relies on paid membership Nitro to make money.
The founder of Discord once said that there is a heated discussion within the company about whether to open an advertising platform, "But I really don't want to sell ads, because selling ads requires us to spend a lot of energy building an advertising system. This will not improve but weaken the user experience." Therefore, it is currently focusing on investing in Nitro membership business and exploring whether a real business can be built around it.
I've heard this too many times.
Many content community founders have had similar thoughts, but reality always grinds them to the ground.
Quora, was once the three good student representatives of the content community. This company, founded in 2009, received a lot of capital support and grew vigorously in the 2010s. The founder also set a flag not to advertise. However, times have changed, and today Quora is still struggling with the dilemma of commercialization. In early 2024, a16z invested US$75 million in Quora to develop its chatbotPoe, which shows that the road to listing is still long.
Known as the Chinese version of QuoraZhihu, although the sprint for IPO was successful, subsequent development was also on thin ice. It has tried almost every trend in the content field, such as knowledge payment, short video, e-commerce, live broadcast, and publishing, which shows its eagerness for commercialization, but it still cannot withstand the embarrassing situation of weak user growth.
It is said that the most valuable thing about community-based products is the people in the community, but when it comes time to settle accounts, no one wants to pay for feelings. Is it really impossible to have both the poetry and the distance in your heart and the bread and milk in front of you? I wonder if Reddit can give a different answer this time.