What Redditors think about the Reddit IPO

More than two years after Reddit first announced plans to go public, an initial public offering is expected to finally hit the stock market this week.

The social network boasts 260 million active weekly users and more than 100,000 active communities, according to its S-1 filing with the Securities and Exchange Commission. These communities, known as subreddits, include forums likes r/MapPorn, home to 3.6 million members. It’s where you’ll find things like literal English translations of places in Denmark.

Without this subreddit, how would we know about the town of Beer Good, located just south of Intestines?

Yet, despite its large user base and quirky communities, Reddit has never turned a profit in its nearly two-decade history.

Marketplace’s Lily Jamali spoke to Elizabeth Lopatto, senior writer at The Verge, who says not everyone is on board with the company’s plans to go public.

The following is an edited transcript of their conversation.

Elizabeth Lopatto: It’s really hard to monetize Reddit, and that hasn’t really successfully happened. It’s a really useful social network. It’s one I think that a lot of people use, especially for Google search results. Like if you’re looking to repair some device, there’s probably somebody on Reddit who has actually written a guide for that, whatever the specific device is. So it is this wonderful repository of internet knowledge. But unlike other social networks, it’s not supersticky. You don’t have to log in to read a Reddit post. It’s just there. And it seems like they’ve had some difficulty also around figuring out how to advertise.

Lily Jamali: Reddit is doing something pretty unusual with this IPO. They’re inviting top Redditors, these are superusers of the site, to buy shares in the IPO before institutional investors. Why are they doing that?

Lopatto: One possible reason is that a risk that’s associated with Reddit is that it is community moderated, which is to say that unlike Facebook, Reddit moderators are not paid by Reddit. They are volunteers who moderate Reddit for fun. And while this is an interesting way to approach moderation, they aren’t necessarily under the control of Reddit the company. And so, when Reddit as a company makes a decision that the moderators don’t like, they sometimes rebel, and this has happened a couple of times in Reddit’s history. So, one way to get them onside is to turn them into shareholders. So, if Reddit is making some decision because they think it will boost profits, maybe the moderators are less likely to rebel.

Jamali: You write about how, based on what you’re seeing, a lot of Redditors seem kind of down on this IPO. Why do you think that is?

Lopatto: I’m just going to read you some of my favorite comments about this. “They have not proven that this user base or data set can be monetized” and “The beginning of the end” was another one. These users just don’t trust the company very much, it seems clear. They expect the stock to go down, they don’t know that their community is monetizable in a way that other social media sites might be. And, they’re concerned that in the pursuit of profit and the attempts to monetize Reddit, their experience will degrade. I saw one user saying, “Great, now we’re going to have to pay to post” and another user saying, “Don’t give them ideas.”

Jamali: Well, let’s talk a little bit more about the relationship between Reddit the company and Reddit superusers. In the run-up to this IPO, Reddit announced last summer that it would start charging for access to its application programming interface, or API. This affected independent developers that build apps using Reddit’s data. Can you describe what happened?

Lopatto: What happened was that some of the subreddits shut down in protest because the API change meant that a lot of apps that moderators were using to moderate their sites could no longer afford to exist. And there’s sort of a variety of reasons why that Reddit rebellion was put down, one of which was that Reddit the company just went in and removed some of the moderators who weren’t falling in line. But it was a pretty clear demonstration of the power that the users have there. That’s different from the power that users have at other social media companies. You can’t effectively stage a rebellion in the same way against changes that are made at Facebook. But one of the reasons why this change was made has to do with [artificial intelligence]. A number of AI companies, including Sam Altman’s OpenAI, have scraped Reddit for training data.

Jamali: For free. They didn’t pay for it.

Lopatto: That’s right. So, the current Reddit leadership thought, well, you know, this is valuable, and we should charge for it. And that was, that was sort of the thinking behind the API change. And right before the IPO was announced, they did indeed do a deal with Google for exactly that.

Jamali: Right, it’s a $60 million content-licensing deal. I have to think that if you’re looking at how to monetize the trove of data that Reddit has at its disposal, obviously they want folks to look at this deal.

Lopatto: Yeah. It’s interesting — $60 million is both a lot of money and not a lot of money. For Google, that’s almost nothing. And I think it reflects the fact that a lot of this data was available for free very recently. If you look at the amount of money that Reddit is losing, I’m not sure that it’s going to be the kind of move that brings Reddit the profitability that maybe investors are hoping for.

Jamali: So $60 million might be a lot, perhaps, for Reddit, but isn’t a lot for Google or others that might be up to partner with it?

Lopatto: Yeah, I think that’s right. We’ll see. It could very well be that other companies seek out other sources of training data because the thing that Reddit has going for it is that it does have a human community. And increasingly, as we’ve seen generative AI take off, there are lots and lots more places where things appear to be AI generated. I wrote a story earlier this year about a number of Amazon listings that were plainly ChatGPT because the Amazon listing included, “I’m sorry, I can’t do this because it’s against OpenAI rules.” There is a lot of clutter on the open web now as a result of these large language models. And in order to continue training on human data, you need people. So, Reddit’s value proposition is essentially like we have all these people, they’re writing conversations, there’s a community collaboration going on, we have lots and lots of people who are talking about pretty much anything you can imagine. That is a data set that you can train on that’s probably less polluted by other large language models.

Jamali: What is your read on some of these arguments we’re hearing about regarding the state of Reddit’s business not being superstrong and these profitability concerns, which come up again and again?

Lopatto: I think they’re real concerns. I don’t know if Reddit has figured out how to monetize itself in a real way. And I don’t know whether that’s just because they haven’t figured out good ad tech. But I think it might also be the case that as valuable as a community can be, something that is valuable as a community is not necessarily valuable as a business. And Reddit is very valuable as a community. I think every Redditor would agree with that. But whether it’s valuable as a business, you know, so far it hasn’t been. I don’t know to what degree that is just decisions that have been made by management and to what degree that is that Reddit itself is very, very hard to monetize.