Reddit (NASDAQ: RDDT) went public in March of 2024 at an IPO price of $34 per share. Since going public the company is up nearly 48%. In the days of YOLO stocks, where we see names like AMC, GameStop, Sundial and Nokia rip on poor fundamentals, there is one common theme: traders are using Reddit to promote their stories.
It’s hard to say how much of the social media hype in these names is pure retail and how much of it is driven by hedge funds. But, there is an important reason that everyone is turning to Reddit; it’s because they have a vast number of active users that are hungry for third party content. Reddit has become one of the last social media platforms to have long form content with such massive engagement. Twitter, now X, still has this to a degree, but the decline is more and more evident with each passing day.
As a social media user, it’s fascinating to me how I can post an article on Reddit and get millions of views with a nothingbuger account. I can’t do this on any other social media platform with the same hit rate. It demonstrates to me that there is a major aggregation of users that are active on the platform looking for content to engage with.
The public needs a town square. And it appears that Reddit is filling the void that Elon believed X would fill.
Facebook as a Comparable
Facebook, now known as Meta Platforms (NASDAQ:META) is the gold standard in the social media equities business. They’ve been mocked for acquisitions like Instagram and WhatsApp over the years, but if anything, Zuckerberg has proven he knows exactly how to convert user engagement on social media to cashflow. From a dorm room start up in 2004 to today, Meta has generated over $45B in operating income in the last 4 quarters and trades at over a $1 trillion dollar market cap.
What have they taught us? There is money in user engagement. Lots of it.
Social media platforms evolve. Today many of us turn to more localized, concentrated, and fragmented forums on all sorts of platforms.
Observationally, Facebook has seen a major decline with active users in North America. For example, stock market groups that used to boast thousands of users are now zombie lands for spammers. Many of us regular Facebook users, see less and less of our high school friends showing off their vacation pictures or telling us how they feel about Donald Trump.
I’d argue these people are still on social media, but they are more likely to show those picture on Instagram with a private feed. Or complain about Trump on X, Substack or Reddit.
Still though, Facebook’s earnings continue to grow. Because they created an advertising platform that is unmatched. In my view, Reddit has opportunities to do similar things without killing the platform. The delta between the $1.3 trillion Meta and the $12 billion Reddit is a great bet for Reddit. I believe Reddit can build an advertising platform at least half as strong as Meta and generate way more advertising revenue than the $800M or so they currently generate.
Reddit’s Advertising Revenue is Early, and the LLM potential is Big
Reddit has been offering advertising for over a decade, but according the the company’s S1 filing they started investing ‘more meaningfully’ in their ads business in 2018. And as Carly Carson, head of integrated media at PMG, told Marketing Brew this past March, Reddit’s platform has “a ways to go.” For myself, having used Facebook, Google, and Reddit’s ad platforms, it’s clear that Reddit’s advertising platform has a great deal of issues, but there in lies the opportunity.
In my opinion, what Reddit has that is unique to both broad media and social media alike, is large scale discussion on current events. As we move forward, these discussion forums provide great stock feed for large language models looking to capture big data. For example, in May Reddit signed a $60M per year deal with OpenAI/ChatGPT.
Reddit’s data can capture humor, public sentiment and even break stories. Sites like BlogTO have effectively made a business out of taking posters original content and creating news articles people want to read. This content within the public square, could have valuable media applications for all sorts of entertainment purposes within the future of AI. It might sound like a pipe dream, but at the very least, if the data licensing revenue doesn’t grow, it still leaves Reddit with consistent cash flow to operate and figure out the ads business.
But on the upside, this data could have gigantic value. Giving LLMs a real time data model to generate content. The kind of data that no one else can provide with the level of scale and diversity Reddit has. And help create content that is hard to wrap your head around in 2024.
Information for this story was found via Statistics Canada, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
