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The American online platform is currently very popular with investors. Reddit is off to a rocky start on the stock market. At times the share was a whopping 70 percent above the issue price. And this despite the fact that the platform was considered less lucrative for a long time.
This is what distinguishes the Reddit platform: Compared to other social media, Reddit is much less algorithmically driven. Users organize themselves into sub-forums – the so-called subreddits – based on specific interests and decide for themselves which content is displayed particularly prominently there. Many people consider Reddit to be one of the last platforms on the Internet where people still discuss things with people.
This is why Reddit never really made it out of its niche: It seems like Reddit hasn’t made any effort to break out of its niche for a long time. For example, the platform did not have its own app for smartphones for over ten years. In addition, the platform is still not very inviting for newcomers. And in contrast to Instagram or Tiktok, it is very text-heavy and can be reminiscent of a bulletin board, one of the early discussion forums on the Internet.
Caption: Reddit CEO Steve Huffman (right) and Reddit CFO Drew Vollero (center) celebrate the company’s IPO at the New York Stock Exchange. Reuters/Brendan McDermid
This is how the platform makes money: Reddit is still not profitable to this day. The company made a loss of a good $90 million last year – on sales of $800 million. Reddit is 98 percent financed through advertising and hopes to continue to increase this revenue. The company has also started selling its content as data for training artificial intelligence. With these licenses, Reddit aims to earn over $200 million more in the next few years. These goals caused euphoria on the stock market: the shares were at times 70 percent above the issue price.
Reddit’s goals are this realistic: Whether Reddit remains at its peak also depends on whether the hype about artificial intelligence persists. If this hype dies down, interest in Reddit training data could also wane. The company also faces a challenge when it comes to the targeted increase in advertising revenue. Many of the platform’s most technically savvy users have ad blockers, so they don’t even see the ads. If Reddit takes too aggressive action against this, it would probably drive many of them away. And because advertising on Reddit is still sparse, many users could lose interest in the platform if that changes.
This would mean a loss of users for the platform: At Reddit, the community takes on many of the moderation tasks – around 60,000 volunteer moderators take care of controlling the content. The community therefore identifies particularly strongly with the platform. Thanks to extensive volunteer work, the company itself only has a little over 2,000 employees – far fewer than other social media outlets. Given the important role that the user base plays – of course also when it comes to the actual content of the platform – Reddit is dependent, for better or for worse, on not alienating its community.