Reddit Could Be Worth 100 Times Its IPO Valuation, According to One Big Tech Critic

Reddit's user base may be relatively small but is incredibly loyal.

Reddit CEO Steve Huffman stands on the floor of the New York Stock Exchange
Reddit CEO Steve Huffman stands on the floor of the NYSE as he prepares for Reddit’s IPO on March 21, 2024 in New York City. Spencer Platt/Getty Images

After much anticipation, Reddit led a highly anticipated initial public offering yesterday (March 21) on the New York Stock Exchange. The social media company saw its shares pop 48 percent above the IPO price by the end of its first trading that, giving the company a $9.5 billion market capitalization. But there’s one problem: the company is unprofitable and its potentially monetizable user base pales in comparison with larger competitors.

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Reddit was founded around the same time as many of what we know today as social media giants, like Facebook and YouTube. A blockbuster IPO is not uncommon in this industry, but the initial hype is no guarantee for long-term prosperity. While Facebook (now Meta Platforms), which was incorporated just 18 months before Reddit and reached a peak market cap of $104 billion during its IPO in 2012, has grown into a trillion-dollar tech giant, Twitter, founded a year before Reddit, claimed a $30 billion market cap during its 2013 IPO but is now privately owned by Elon Musk and reportedly worth only around $20 billion.

Reddit last disclosed in 2019 that it had 330 million monthly active users. It hasn’t given an updated count since then, though its IPO filing said the site saw 500 million visitors in December 2023.

Reddit’s low valuation is partially driven by the company’s disclosure in its S-1 filing that it is still in the “early stages of monetizing [its] business.” The company has yet to turn a profit, though it noted that it “believes that there is an emerging opportunity in data licensing.” Reuters reported in February that Reddit had entered a $60 million per year contract with Alphabet to train its artificial intelligence models on Reddit’s rich reserves of forum chats and user data.

Reddit’s relatively small user base is driven, in part, by its unique structure as being split into thousands of communities, or “subreddits,” where users can converse, post and comment on a single topic. And its users were deemed “less valuable” than those of rival platforms’. CNBC reported in 2019 that Reddit earned only $0.30 in revenue per user, compared with Twitter’s $9.48, Facebook’s $7.37 and Pinterest’s $2.90.

However, some investors are still highly optimistic. Scott Galloway, an entrepreneur and marketing professor at New York University, wrote in his weekly blog that Reddit could be worth 100 times its IPO valuation in the long term. “Figuring out the monetization is hard. Developing a product that commands this level of attention is harder, and Reddit has done it,” he wrote.

Reddit’s user base may be small, but it is incredibly loyal. The online discussion forum was the eighth most visited website in the world as of January, as per Semrush, and had accumulated one billion posts and 16 billion comments by the end of 2023. Its vibrant user groups have created cultural phenomenons, such as the subreddit “r/wallstreetbets,” which drove the storied GameStop and Bed Bath & Beyond “meme stock” hypes in 2021.

Reddit’s IPO had an unusual feature of reserving many pre-IPO shares for its long-standing users, typically only sold to institutional investors, allowing them to benefit from the company’s post-IPO stock rally.

Reddit was founded by Steve Huffman and Alexis Ohanian in 2005 as a dorm-room start-up at the University of Virginia. Huffman currently serves as CEO. Last year, the company brought in $804 million in revenue, as per its S-1.

Reddit Could Be Worth 100 Times Its IPO Valuation, According to One Big Tech Critic