Reddit Showed the World That IPOs Don’t Make Any Sense.

🌈 Abstract

The article discusses Reddit's recent IPO (Initial Public Offering) and analyzes the company's financial performance, monetization strategies, and the challenges it faces due to its reliance on its vocal user base.

🙋 Q&A

[01] Reddit's Financial Performance

1. What are the key issues with Reddit's financial performance?

• Reddit has never turned a profit since its inception, unlike other social media companies like Facebook and Twitter.
• Reddit is burning cash to stay in business and is not profitable in any way.
• Reddit's primary revenue source is advertising, but it faces challenges due to a large portion of passive users and the prevalence of ad-blocking software among its tech-savvy user base.

2. What are some of Reddit's strategies to improve its financial situation?

• Focusing on growing its advertising business by investing in more ad tech and driving user growth.
• Exploring alternative monetization avenues, such as data licensing, but the success of these efforts remains uncertain.

[02] Reddit's Reliance on its User Base

1. What are the challenges Reddit faces due to its reliance on its user base?

• Reddit's user base, known as "Redditors," are extremely vocal in their criticism of the company, as evidenced by the "Subreddit Blackouts" that occurred in protest of changes in Reddit's API policy.
• Reddit's community moderation model, where unpaid moderators manage the content in their respective subreddits, makes it difficult for the company to control its user base.
• Redditors expressed concerns that the IPO was an "exit plan for early investors" and that going public would threaten their ability to interact with the site.

2. How did Reddit try to address the concerns of its user base regarding the IPO?

• Reddit offered longtime users and moderators the opportunity to buy shares early on, which was met with a mixed reaction.

[03] The IPO Landscape

1. What is the author's perspective on Reddit's decision to go public?

• The author acknowledges that the decision to go public is not made in isolation and that various factors, such as market conditions, may have influenced Reddit's decision.
• However, the author finds it difficult to justify or reason through the decision, as it does not seem to make logical sense.
• The author sees Reddit's successful IPO as a reflection of an "illogical IPO landscape."