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Social engagement player Reddit (RDDT) finally went public earlier this year. Reddit had been eyeing a listing for a while and had filed an S1 in 2022. But the market conditions delayed the listing. The recent listing appears to be doing well so far.

Reddit’s Offerings

Reddit was founded in 2005 by Alexis Ohanian and Steve Huffman as a platform for online communities. It hosts user-generated content where community members can submit links, ask questions, create content, comment, and vote on user-generated content. Posts are classified as Subreddits or topics ranging from sports, gaming, pics, videos, and college admissions. Reddit’s platform has over 100,000 themed communities that are visited by more than 76 million people daily. According to a report by Similarweb, Reddit is ranked amongst the top ten most-visited sites in the United States in December 2023.

Reddit earns revenues through its self-service advertising platform and a subscription-based service that offers users additional features such as ad free views and comment highlighting. For advertisers, it provides access to a highly engaged audience where communities drive recommendations on brands and buying decisions.

Besides advertising, Reddit is focused on building an entrepreneurial user economy. New community-based marketplaces are being set up for commercial purposes. For instance, r/ PhotoShopRequest, allows users to request photoshop services for payment. Similarly, r/ RandomActsofCards lets users request and send cards to each other. Reddit plans to monetize these user-powered communities by providing users and creators with access to tools and incentives to drive commerce through their site.

Reddit is exploring data licensing as another revenue stream. It is in the initial stages of allowing third parties to license access to search, analyze, and display historical and real-time data from its platform. It plans on monetizing the data through two key product offerings – Data API access and model training. It is working on getting customers to pay for accessing real-time data streams of anonymous, public discussion on Reddit via data APIs once they exceed certain rate limits. These data APIs can provide real-time access to evolving and dynamic topics to help in use cases such as behavioral analysis and algorithmic trading. Reddit expects to bring in $66.4 million in data licensing revenues this year.

Given the growing focus on AI and machine learning models, Reddit is also exploring the ability to use Reddit’s data as a foundational piece in the training of models. Reddit’s massive trove of conversational data is expected to help train and improve LLMs. It has already entered into an agreement with Google that will allow the tech giant to gain more access to Reddit data to train its AI model.

Reddit’s Financials

Reddit has seen its revenue grow significantly. For the year ended December 2023, revenues grew 21% to $804 million. The company is not yet profitable and reported a net loss of $90.8 million in 2023 compared with $158.6 million in 2022.

It recently reported its second quarter results. Revenues grew 54% to $281 million compared to $254 million expected by the market. Losses reduced to $10.1 million from $41.1 million a year ago. It ended the quarter with a loss of $0.06 per share compared with a loss of $0.33 per share estimated.

By segment, online advertising revenues grew 41% to $253.1 million. Other revenue, which includes its data licensing business, rose 691% to $28.1 million.

Among key metrics, average revenue per user was $3.08, ahead of the analysts’ estimates of $3.02. The number of daily active users grew 51% to 91.2 million, which was also ahead of the analysts’ estimates of 84.5 million.

For the third quarter, Reddit expects revenues of $290-$310 million, significantly ahead of the market estimates of $278.7 million.

Prior to going public this year, Reddit had raised $1.3 billion in funding from investors including SV Angel, Bracket VC, Andreessen Horowitz, Edward Lando, Fidelity Investments, Coatue Management, Alrai Capital, Sequoia Capital, VentureSouq, Vy Capital, Y Combinator, Jared Leto, Snoop Dogg, Rick Marini, Paul Buchheit, Jessica Livingston, 500 Startups, Mariam Naficy, A. Capital Ventures, Kevin Hartz, Thrive Capital, and Philip Kaplan.

In May this year, when Reddit listed on the NYSE, it raised $750 million by offering at $34 a share, valuing it at $6.5 billion. A funding round held in 2021 had valued the company at $10 billion. Today the stock is trading at $55.02 with a market capitalization of $9.4 billion. It had climbed to a high of $78.08 soon after listing.

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