Under most circumstances, raising US$700 million / AU$953.5 million in series F funding to push your companyโs value beyond US$10 billion / AU$13.6 billion would be an extremely positive thing โ and while itโs by no means a negative for Reddit, it does highlight a perennial issue thatโs plagued the self-styled โfront page of the internet.โ
The latest round of financing was led by Fidelity Investments, increasing its valuation from the US$6 billion / AU$8 billion benchmark achieved just six months ago thanks to a comparatively moderate US$250 million / AU$340 million raise. Though this direction wasnโt always an actively pursued objective.
โFidelity made us an offer that we couldnโt refuse,โ reveals Steve Huffman, Reddit Co-Founder & CEO.
โWe are still planning on going public, but we donโt have a firm timeline there yet. All good companies should go public when they can.โ
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So whatโs the issue here? Where exactly is the cause for concern? As noted by veteran publishing professional and media pundit โ Simon Owens โ the fact Reddit needs to raise capital at this stage of its lifespan points to a single glaring weakness: actually making money.
โReddit is 16 years old โ I canโt imagine why it would need $700 million in additional investments this late in the game,โ writes Simon Owens.
โItโs generating $100 million in advertising per quarter โ less than The New York Times. It is really struggling to monetize its huge audience.โ
Keep in mind the US$100 million / AU$136 million figure represents considerable growth too. Surpassing the nine-figure threshold in quarterly revenue for the first time in Q2, this represents an overall increase of 192% from the same period back in 2020.
โWeโve grown up in the shadow of Facebook and Google,โ adds Huffman.
โAnd pretty much every dollar we make weโve had to fight for.โ
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Competition in a landscape where digital giants like Facebook, Google, Twitter, Snap, and Pinterest roam, however, is just one element of a larger problem. There has long been an unspoken agreement between the people behind the scenes and the users that advertising โ i.e. the very factor driving revenue for the majority of these sites โ would be kept to a minimum.
Itโs to the point where the platform has recently scrapped programmatic ads entirely, ostensibly limiting their funnel. Furthermore, itโs no secret that the average click-through rate for ads on Reddit is noticeably lower than that of, say, Facebook.
According to an experiment conducted by Social Media Lab, the former obtained a 0.26% CTR, whereas the latter obtained a 0.90% CTR. Meaning Reddit Ads require far more impressions just to get a click (its saving grace is, of course, a lower cost per click).
The true value of Reddit neednโt be justified at this point of its existence. Anyone still unclear about the โintangibleโ power of community can simply ask Wall Street how deez nuts defeat tastes. Whether this can be adequately translated into dollars and cents approaching the foreseeable future is another matter entirely.
โThe first priority on the product is just making Reddit awesome,โ says Huffman.
โWe want to build what is best for new users, because over time, it will be best for everyone.โ
