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Reddit Files to Go Public at Last

Accepted submission by upstart at 2024-02-25 02:15:47
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Reddit files to go public at last [techcrunch.com]:

Social media giant Reddit filed to go public today. Its long-awaited S-1 filing [sec.gov] will see it approach the public markets potentially at the head of a long column of richly valued technology startups [techcrunch.com] and private companies that need to find an exit this year.

The timing of Reddit’s IPO is not a surprise [techcrunch.com].

The company’s got a long and tangled history. It was sold in its infancy [techcrunch.com], only to be later spun back out [techcrunch.com]. Today Reddit approaches the public markets with more than $800 million worth of revenue in 2023, up from $666.7 million in 2022.

However, the company remains unprofitable on both a GAAP and adjusted basis, and continues to consume cash to fund its operations. Scale has not yet solved the profitability question for Reddit, which could limit its potential valuation when it does list its shares.

In 2022, Reddit generated a net loss of $158.6 million and had an adjusted EBITDA of negative $108.4 million. In 2023, those figures improved to a $90.8 million net loss and $69.3 million worth of negative adjusted EBITDA. The company’s free cash flow improved from –$100.3 million to –$84.8 million over the same timeframe.

The company may be making progress toward stemming the red ink that is missed in its annual figures. In the final quarter of 2023, Reddit not only posted what was at least a local maximum in revenue terms — $249.8 million — but also a net profit of $18.5 million. While the GAAP profit is notable for the fourth quarter, the company’s free cash flow was still negative in the period, ending the three-month period at –$22 million.

Reddit raised more than $1 billion while private, according to Crunchbase data [crunchbase.com]. That figure includes a massive $410 million Series F [techcrunch.com] raised in 2021 and a smaller $368 million Series E raised earlier the same year [techcrunch.com]. The Series E pushed Reddit’s valuation to $6.4 billion, while its Series F took it to a roughly $10 billion valuation.

Both of those bubble-era valuations will be tested in Reddit’s now quickly forthcoming IPO. But the company’s debut will be more than a test for certain private-market startup valuations. Reddit is reportedly trying something novel in its own flotation.

An IPO with a twist

In what is broadly viewed as an unorthodox move, Reddit reportedly plans to reserve an undetermined number of shares for 75,000 of its users, according to the Wall Street Journal [wsj.com], which cited people familiar with the matter. Those users will be given the chance to scoop up shares of Reddit at its IPO price before the stock even begins trading — something typically reserved only for large investors.

Tailwinds

Reddit’s IPO filing comes at an auspicious time. Reuters reported [reuters.com] that Reddit has reached a deal with Google to allow the search giant to use its data. The publication pipped the deal’s value at around $60 million per year. That makes it worth roughly 7.5% of its 2023 revenue, a very nice tailwind for its 2024 results.

If Reddit is able to secure similar deals with other major AI model providers like OpenAI, it could see its revenue base expand from new sources this year in a manner that could undergird its first few quarters’ results as a public company.

Reddit is known to be a key source of data [techcrunch.com] for LLMs, which could give the social media company a way to monetize from the current AI wave at very high gross margins.

In its S-1 filing, the company said that it is in the early stages of giving third parties the ability to “license access to search, analyze, and display historical and real-time data from our platform.” Investors love a growth story, and Reddit has a fresh revenue plank to crow about as it embarks on its eventual roadshow.

The investor pitch

The popular site is impressively growing its user base. The number of global daily active users (DAUs) climbed 27% in the three-month period ended December 31, 2023. For a site that has existed for a decade, that’s a significant achievement. Specifically, according to the filing, Reddit had more than 500 million visitors in December 2023 alone and an average of 73.1 million daily active unique users globally in the three months ended December 31.

Looking ahead, Reddit believes it still has plenty of opportunity to grow revenue through advertising. Unsurprisingly, it claims to be in the “early stages” of using machine learning and prediction models to “better match supply and demand and deliver return on investment” for its advertisers. Examples of that include using prediction models to do things like help better predict conversion rates of an ad.

Advertising revenues in the technology world have recovered to a degree, with companies like Meta and Amazon that sport massive ad incomes reporting earnings that included growth in that area of their larger business. After some time in the doldrums, the tides of the economy could be tilting back in Reddit’s favor.

Reddit wants to parlay its user growth into advertiser revenue growth. It ambitiously estimates that its total addressable market globally from advertising alone, not including China and Russia, to be a whopping $1.4 trillion. It’s talking specifically about desktop and mobile web, display, video and social direct response ads, in addition to search advertising.

Reddit is not an enterprise SaaS business, so it has a different business model than much of startup land. But if it does manage to price its IPO well and put up some strong early trading results, it could help nudge some other late-stage, private-market tech companies off the sidelines and into the IPO chute. Not only would that make your friendly local venture capital reporters happy, as we love the data that IPO filings bring to us as much as we love oxygen, a surge in public-market liquidity would also be a boon to venture investors long sitting on paper returns that they would love to convert to cash.

rewarding-poor-management dept.

Reddit's Ellen Pao is latest female CEO blamed for inherited woes, experts say [theguardian.com]:

Ellen Pao speaks to the media in San Francisco. Photograph: Jeff Chiu/APView image in fullscreenEllen Pao speaks to the media in San Francisco. Photograph: Jeff Chiu/AP This article is more than 8 years oldReddit's Ellen Pao is latest female CEO blamed for inherited woes, experts say This article is more than 8 years old

As Pao steps down following a petition and death threats, sociologists and other observers point to a ‘glass cliff’ for female executives

Female chief executives like Ellen Pao may reach the pinnacle in business only to discover that they have risen to the top of a precarious “glass cliff”.

That was the analysis of one expert in the aftermath of Pao’s decision to resign [theguardian.com] from Reddit late on Friday, after almost a week during which users hurled insults, hate mail and even death threats her way over the firing of a popular site administrator.

“Oftentimes, the women who inherit the problems are put in precarious positions, and if they fail, they are blamed for it,” said Marianne Cooper, a sociologist at Stanford University’s Clayman Institute for Gender Research [stanford.edu] and the lead researcher for Lean In: Women, Work, and the Will to Lead [leanin.org], a book written by Sheryl Sandberg, the chief operating officer of Facebook.

Pao, who earlier this year became a symbol for gender imbalance in Silicon Valley when she lost a landmark discrimination lawsuit [theguardian.com], leaves Reddit after around eight months. She will be replaced by one of the site’s co-founders, Steve Huffman [recode.net].

On Friday, Pao posted a resignation letter on the site.

“In my eight months as Reddit’s CEO,” she wrote, “I’ve seen the good, the bad and the ugly on Reddit [theguardian.com]. The good has been off-the-wall inspiring, and the ugly made me doubt humanity.”

Pao instituted measures against trolling and harrassment, causing resentment among many users and leading some to leave the site [theguardian.com].

“I just want to remind everyone that I am just another human,” she wrote. “I have a family, and I have feelings.”

Sam Altman, a Reddit board member, also posted a statement.

“People are still people even if there is internet between you,” he said. “Disagreements are fine. Death threats are not, are not covered under free speech, and will continue to get offending users banned.”

Silicon Valley watchers and executive analysts, meanwhile, agreed that many female chief executives – certainly not just Ellen Pao – often confront a situation that sees women put in leadership positions when a company is going through a crisis or downturn and when the chance of failure is highest.

Barbara Annis, co-author of Work with Me: the 8 Blind Spots Between Men and Women in Business [youtube.com] and the founding partner of Gender Intelligence Group [genderintelligence.com], a New York firm specializing in gender diversity training, said: “What they [Pao’s critics] are trying to do to Pao is character assassination, and yes, her being a woman and a woman who [previously] filed a discrimination suit against her employer contributes to the insane fervor of which people responded to her decisions as CEO.”

Hashtags including #RedditRevolt and #ChairmanPao trended on Twitter this week. A petition on the social justice site Change.org called for Pao to resign. By the time she did so, it had attracted 213,000 signatures.

“There is a different lens for male CEOs and female CEOs,” said Annis, who was the first saleswoman at Sony in the 1980s and now provides training to employees at Fortune 500 companies including Microsoft, IBM and Deloitte. “Every mistake a female CEO makes gets attributed to her gender, and for men it’s not that way.”

But was Pao – who on Monday posted an apology which said: “We screwed up” – pushed off of the glass cliff by angry Reddit users, or did she simply decide that she had enough of the hate?

Annis said the effect of Pao’s gender discrimination suit against her former employer, venture capital giant Kleiner Perkins Caufield and Byers (KPCB), could follow her to other jobs.

“It’s a lose-lose for women like Pao, because even if they win they get labeled as a troublemaker for a long time, even when they go to other companies,” Annis said.

Indeed, the Change.org petition mentioned Pao’s discrimination lawsuit against KPCB, a Menlo Park-based venture capital firm for which she worked from 2005 to 2012.

“A vast majority of the Reddit community believes that Pao, ‘a manipulative individual who will sue her way to the top’, has overstepped her boundaries and fears that she will run Reddit into the ground,” wrote the author or authors of the petition.

Pao lost her case against KPCB when a jury decided her gender was not why she was not promoted. In June, judge Harold Kahn reportedly ordered Pao to pay almost $276,000 in legal fees [techcrunch.com] to KPCB.

Cooper said General Motors’ Mary Barra [theguardian.com] was another example of glass cliff situation. She was moved up to chief executive in January 2014, weeks before a major safety issues that lead to a series of recalls and pitched her straight into gruelling testimony in Congress over the automaker’s safety record.

“I haven’t seen this kind of reaction to egregious things male CEOs have done,” said Cooper. She also pointed to the case of Gurbaksh Chahal [businessinsider.com], the former CEO of software company RadiumOne who was convicted of domestic violence [nbcbayarea.com] in 2014 and arrested again in San Francisco in May for allegedly assaulting another woman.

Chahal was fired [wsj.com] but Cooper said there was not as much of a reaction in the media as there has been over Pao.

That there were problems at Reddit is evident. On Friday a media representative for the company declined to comment, but in her statement on Monday, Pao acknowledged such problems and promised to deliver on solutions.

The Change.org petition, which was posted by an account holder under the name Billy Johnson, said: “The communication between the Reddit administration team to its subreddit moderators is very lacking and rather unsettling after years of empty promises to the moderators to improve and provide tools to help run subreddits, and ultimately Reddit as a whole, smoothly.”

In her apology, Pao said: “We will improve tools, not just promise improvements, building on work already underway … we’re also going to figure out the best way for more administrators, including myself, to talk more often with the whole community.”

Ariane Hegewisch is study director at the Institute for Women’s Policy Research [iwpr.org] in Washington DC, and an expert on workplace discrimination and sexual harassment issues. On Friday, she said the level of criticism directed at Pao may not have been because of her lawsuit, but because of the nature of the business she was in.

“Reddit is a medium that has engaged users and encourages participation,” Hegewisch said. “Users are valid forces and they are showing that they are angry with Pao.”

However, Hegewisch said, Pao’s anti-harassment policies were probably inspired by her gender discrimination suit. Her experience showed that Reddit needed the new policies.

However, Hegewisch said, Pao’s anti-harassment policies were probably inspired by her gender discrimination suit. Her experience showed that Reddit needed the new policies.

However, Hegewisch said, Pao’s anti-harassment policies were probably inspired by her gender discrimination suit. Her experience showed that Reddit needed the new policies.

However, Hegewisch said, Pao’s anti-harassment policies were probably inspired by her gender discrimination suit. Her experience showed that Reddit needed the new policies.

Explore more on these topics

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Major Reddit communities will go dark to protest threat to third-party apps [theverge.com]:

Major Reddit communities will go dark to protest threat to third-party apps Major Reddit communities will go dark to protest threat to third-party apps / App developers have said next month’s changes to Reddit’s API pricing could make their apps unsustainable. Now, dozens of the site’s biggest subreddits plan to go private for two days in protest. Share this story

Update June 8th, 5:12PM ET: Apollo developer Christian Selig announced his app would shut down on June 30th [theverge.com]. His announcement post on Reddit [reddit.com] refuted Reddit’s accusations that his app was inefficient and contained a partial transcript of a call from a Reddit moderator where the company’s CEO apparently says that Selig tried to blackmail the company.

Some of Reddit’s biggest communities including r/videos [reddit.com], r/reactiongifs [reddit.com], r/earthporn [reddit.com], and r/lifeprotips [reddit.com] are planning to set themselves to private on June 12th over new pricing [reddit.com] for third-party app developers to access the site’s APIs. Setting a subreddit to private, aka “going dark,” will mean that the communities taking part will be inaccessible by the wider public while the planned 48-hour protest is taking place.

As a Reddit post [reddit.com] about the protest, that’s since been cross-posted to several participating subreddits, explains:

On June 12th, many subreddits will be going dark to protest this policy. Some will return after 48 hours: others will go away permanently unless the issue is adequately addressed, since many moderators aren’t able to put in the work they do with the poor tools available through the official app. This isn’t something any of us do lightly: we do what we do because we love Reddit, and we truly believe this change will make it impossible to keep doing what we love.

A complete list of the hundreds of communities taking part [reddit.com] (known in Reddit parlance as “subreddits”) includes dozens with over a million subscribers each.

The protest comes after the developers of several third-party Reddit apps have said the future of their services have been threatened by the company’s new pricing. The developer behind Apollo [reddit.com], for example, said that at its current rate of making 7 billion requests per month, it would need to pay $1.7 million for access to Reddit’s API, or $20 million a year. “I don’t see how this pricing is anything based in reality or remotely reasonable,” developer Christian Selig wrote. “I hope it goes without saying that I don’t have that kind of money or would even know how to charge it to a credit card.”

However, one of Reddit’s employees has argued that the new API charges should be affordable if third-party apps are efficient with the API calls they make. “Our pricing is $0.24 per 1000 API calls, which equates to <$1.00 per user monthly for a reasonably operated app,” they wrote [reddit.com]. “Apollo as an app is less efficient than its peers and at times has been excessive — probably because it has been free to be so.”

But the developers behind other third-party Reddit apps have expressed similar concerns. Reddit is Fun said [reddit.com] it would have to pay a figure “in the same ballpark” as Apollo to continue to operate and that it “does not earn anywhere remotely near this number.” The developer behind Narwhal said it will be “dead in 30 days [reddit.com]” as a result of the charges.

The potential for third-party apps to cease operations is particularly problematic for subreddit moderators, who say they often rely on these tools to manage their communities. “In many cases these apps offer superior mod tools, customization, streamlined interfaces, and other quality of life improvements that the official app does not offer,” moderator BuckRowdy wrote in an open letter [reddit.com] that’s since been co-signed by the moderators of numerous other subreddits. “The potential loss of these services due to the pricing change would significantly impact our ability to moderate efficiently.”

As well as the new API pricing, the open letter also raises concerns about the ability of third-party apps to show ads (a key source of revenue), and new restrictions that would prevent NSFW (not safe for work) content from being made available via the API.

Reddit spokesperson Tim Rathschmidt tells The Verge that the vast majority of people who use the API won’t need to pay for access, and noted that the Reddit Data API is free to use within Reddit’s rate limits as long as apps are not monetized. Rathschmidt also notes that API access is free for mod tools and bots, and says that Reddit is in contact with “a number of communities” over the company’s API terms, platform policies, and more.

Reddit has seen several protests like these throughout its history. In 2021, for example, hundreds of Reddit communities locked down [theverge.com] to protest the site’s handling of a controversy around a former UK politician it had hired (Reddit later confirmed it had cut ties with the individual). Moderators took similar collective action the previous year in protest over Reddit’s hate speech policies [theverge.com].

Reddit’s planned changes to its API pricing come months after Twitter outright banned third-party clients [theverge.com] and announced a much more restrictive pricing structure for access to its APIs [theverge.com]. Reddit is reportedly planning to go public later this year [reuters.com], which could help explain the restructure fees for API access.

Check out Christian Selig’s interview with Snazzy Labs’ Quinn Nelson [youtu.be] below for more background on the controversial changes.

Update June 5th, 9:02PM ET: Added information from Reddit.

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