Reddit has a long history of trying to go public. It’s been talked about for so long that it’s hard to lose count of when the topic first appeared in the media. Maybe it was 2019? Or 2021?
In 2021, Reddit was valued at $10 billion in a private equity raise. In 2022, the valuation was at $15 billion, which seemed significant. Still, Reddit delayed the IPO to get a better offer. In 2024, industry leaders advise Reddit to target $5 billion, slightly higher than Reddit’s current valuation after raising private investment.
There is now talk of an IPO scheduled for March. But here's why I doubt Reddit will be able to reach the $5 billion capitalization it's being prophesied.
Reddit's main problem is that it never found the key thing it needed to rebirth itself from a forum into a tech company: a model for making a profit. At the end of 2023, Reddit had revenues of $800 million, but it's still unprofitable. At least that's what Amy Or of Bloomberg wrote: "It Isn't Profitable Yet."
And there are a lot of questions to this "Yet." Because let's pretend it's unprofitable, not "Yet," but can't make a profit ever. Or those profits will be so insignificant as to be of no significance. Can we imagine that? I think we can. Because the problems lie much more profound than "wait and it will all work out." Reddit is not a young platform; it's not a startup just starting to gain momentum. It's one of the elephants of the internet, created in 2005; this has its advantages, as it's one of the oldest platforms of the modern internet, and its disadvantages.
What's the problem?
The problem is that Reddit doesn't have a good answer for how it plans to become profitable. And, just as importantly, not to lose the very essence of the platform in the pursuit of profit. Typically, platforms like Reddit, with a large audience that generates tons of content daily, can choose from several strategies or combine them. For example, they may offer users to subscribe. Or, they can show users ads.
Both are a big deal when it comes to Reddit. While the platform has a large number of registered users, it is quite different from other social networks that have a lot of demographics. On Reddit, you can post under a nickname and only provide the information that could help show you relevant ads.
This complicates an already difficult task for Reddit: integrating ads so that they become an essential part of the overall system. Without detailed audience information, this will be difficult, if not impossible. As a result, as Dana Mealey, a brand advertising specialist, tells me, this often leads to "any other platform will be better for promotion."
Subscriptions also remain a source of revenue that can't be monetized significantly. Reddit keeps trying, though. Right now, Reddit Premium doesn't give you any features people must pay for. According to SimilarWeb, 57.19% of Reddit's traffic is organic search. And there's no room for restricting browsing with a paywall because that would directly hit those who get on Reddit without being active users.
That said, the Reddit community has one unique thing going for it: it is, unlike more traditional networks like Twitter and Facebook, a true community that has internal rules and its own ideology and value system that is much more hostile to advertising and promoting products or services compared to any other users.
This hostility is built on the perception of Reddit as a forum or discussion platform as it was at the dawn of the internet and in the way Reddit inherited. This applies to the self-governance of the various parts of the community, which organize moderation and control themselves, and to the perception of each user's contribution.
Active Reddit users are, for the most part, convinced that they are not users in the way that Facebook or Instagram users understand it. Instead, they believe that they are the source of value and that Reddit is just a tool for them to continue to create that value.
And all of this poses problems for the sustainability of Reddit's business model. Will they be able to remain sustainable after they IPO? Because their business model has a lot of time bombs. And worse than an IPO at a low price can only be a post-IPO crash. We've already seen this with Uber and Robinhood, which went down after a successful IPO.
The timing
And all of this creates challenges for the sustainability of Reddit's business model. Will they be able to remain sustainable after they IPO? Because their business model has a lot of time bombs. And worse than an IPO at a low price can only be a post-IPO crash. We've already seen this with Uber and Robinhood, which went down after a successful IPO.
I'm not trying to be a pessimist to "predict" a failed IPO, but I have a hunch it won't be successful. One of the problems is the profit model. While Reddit hinted that Q4 2023 brought a small profit, it didn't change the primary picture: there's still no profit in 2023.
Once the stock goes public, the time bomb will start ticking even faster because those who bought the stock will be waiting for profits and good news. Or they will get rid of the stock.
The same thing is already happening after the first rumors that Reddit will IPO have surfaced. When I see the news about the $5 billion analysts advise, I remember the $15 billion that Reddit was already valued at. This creates a piston movement that pressures investor expectations, and Reddit, Inc.
