The Information says that the rally that sent US shares of companies like GameStop and AMC Entertainment soaring earlier this year was “driven in large part by discussion on Reddit, the 16-year-old online news aggregator and discussion forum. That reflects the size of Reddit’s audience, which runs to 430 million monthly users globally… That puts it very close to Pinterest, which had 454m monthly users…”
Despite that audience, Reddit is only now becoming a sizeable advertising business. After three years of intensive effort, Reddit expects to exceed $350m in ad revenue this year – at least double that in 2020. By contrast, Pinterest had about $1.1bn in ad revenue just in the first half of this year.
As a result, Reddit is raising funds to step-up its marketing. The Information reports: “Last month, the company said it was raising up to $700m in a Series F round, which would value the company at more than $10bn. The company also has plans to go public, and is seeking to hire bankers and lawyers for an offering that could come as early as next year…”
(Alexis Ohanian sold Reddit to Conde Nast in 2006 for a mere $10m. The latest fundraising valued the company at $6bn. Ohanian says he is helping other young entrepreneurs avoid making the same mistakes he did in selling a business prematurely.)
It says that one challenge to Reddit’s advertising ambitions is the nature of its content: “The site hosts discussion groups on a wide range of subjects, from WallStreetBets (which sparked the trading frenzy for meme stocks on Wall Street earlier this year) to all sorts of video-gaming topics, and even Showerthoughts, a group dedicated to miniature epiphanies. Some have been controversial for extremist or unsavoury content, including the pro-Donald Trump group The_Donald, which Reddit banned in 2020 for violating its rules on harrassment and targeting. And just last month, Huffman declined to ban anti-vaccine communities, on the grounds that Reddit is an open forum, after pro-vaccine site moderators asked the company to do more to combat Covid-19 misinformation”.
Another issue: About 50% of Reddit’s audience is currently outside the US, but only 1% of the company’s ad revenues come from overseas. That’s a common problem for companies like Pinterest, Twitter and Snap, reflecting how much more developed the online ad market is in the US than in many overseas markets.
The Information notes: “Smaller marketers are a big reason why Google and Facebook have amassed such huge ad businesses. Facebook, for example, said last year that the top 100 advertisers on its platform represented just 16% of the $18.3bn in ad revenue it generated in the second quarter – a number that was actually down from the 20% Facebook disclosed in 2019”.