Company Breakdown: Reddit
Reddit is incredibly popular. How's the stock?
Note: This is not investment advice. We may personally hold positions in any companies discussed.
Reddit is a fascinating company. Despite a resolving door of leaders, owners, and controversies - Reddit has become increasingly more popular over time and more embedded within popular culture over the past decade, leading up to an IPO in March 2024. With changes in Google search algorithms and a need for curated online content, Reddit might just be getting started.
History
Reddit was started in 2005 by Steve Huffman, Alexis Ohanian, and Aaron Schwartz. The company was initially bought by Conde Nast for $10-$20M. In 2011, it became an independent subsidiary and in 2014 it raised an outside funding round led by Sam Altman. It then continued to raise outside rounds, the last one being a $700M round led by Fidelity in 2021, at a ~$10B valuation.
People
Steve Huffman is the CEO of Reddit. He co-founded the company and was the CEO from 2005 to 2009. He returned in 2015 and has been there ever since.
Other key team members include Jen Wong, the COO, and Chris Slowe, the CTO who was also a founding engineer.
Overall, the core leadership team has several veterans, and the company is founder-led. According to LinkedIn, the company has ~3,500 employees.
Product
Reddit as a product has evolved over time. They are focused primarily on community development via forums and sub-forums. Reddit has a few key features that are especially relevant in a world where there’s more AI and SEO-optimized spam than ever, where consumers are looking for community & real information, and where brands are looking for new advertising channels.
Topic based forums: Reddit is used for entertainment, information, and community. For users, topics allow you to easily find information and connect. For advertisers, it allows curated audiences.
Entertainment:
Users are spending more time on their phones than ever and are looking for content that’s engaging and entertaining. Reddit is currently the #1 news app on iOS and the #40 app overall (this slightly fluctuates by the day). Reddit’s top 4 communities are 1) r/funny (with 64M members); 2) r/AskReddit; 3) r/gaming; and 4) r/worldnews.
Information:
Reddit is often one of the top sources if you search a specific question online. The text is easily searchable and the platform focuses on long-form posts.
Community:
Reddit is used to build communities of all types - whether you’re a brand that wants to engage directly with your users, you want to connect with users based on a hobby or life stage, or you want to get advice and feel more connection to others.
Moderators
Each Reddit forum and sub-forum have moderators who help curate the group and ensure it aligns with the community guidelines.
Upvotes / Downvotes
Reddit users can upvote, downvote, and comment on content which helps surface the best content for others.
Anonymity
Reddit usernames are anonymous so users often post more detailed information than you find on other platforms.
From its investor reports, Reddit is currently focused on international growth (more possible now due to AI-translation) and more engaging conversation and ad formats.
Growth
Reddit’s user growth has been impressive, especially at scale. Source: Reddit Shareholder Letter
Besides organic and product-led growth, another driver for growth has been a change in Google’s algorithms. While Google does not publicly share details on their algorithm changes, they have stated that they are focusing more on first hand content - which has rewarded platforms like Reddit and punished more spammy, SEO-optimized sites. It is too early to say what the impact on AI and Google competitors like Perpexity will have on Reddit’s volume. Source: BBC
Market
According to EMarketer, Reddit is the fastest growing social network based on time spent YoY.
Risks
There are always risks with a company like Reddit. Google’s algorithms could change, the growth could slow down, leadership could change, there could be additional controversies, or AI radically disrupt the entire industry.
Reddit is not profitable and its P/S ratio is higher than its peers.
Stock Performance
RDDT 0.00%↑ is currently trading at an all-time high and is up ~58% since the IPO (as of October 17, 2024). Source: Yahoo Finance
Summary
Overall, Reddit is a quickly growing platform and continues to take up more mindshare and scroll time with its users. With Google’s algorithm changes and users seeking more human connection online, Reddit has the potential to thrive as a public company.