How Reddit Makes Money

Reddit makes money by selling ads and premium membership plans

Reddit Inc. is a social media website that enables users to form online communities, share ideas, photos and videos, post the latest trends and breaking news, and vote on content posted by other users. The website is known for its discussion forums, including its popular "Ask Me Anything" format. Reddit makes money by selling advertising space and from an optional premium membership plan that allows users to turn off ads and enjoy other benefits. Reddit also offers managed-ads campaigns and auction-based advertising to advertisers.

Key Takeaways

  • Reddit is a social media website known for its discussion forums on politics, sports, entertainment, and other topics.
  • The company generates revenue through advertising and an ad-free premium membership plan.
  • Reddit operates in the application-software segment of the technology industry, providing software that allows users to share media content.
  • The firm recently appointed Drew Vollero as the company's first CFO.

Reddit's Industry

Reddit is a social media website that provides users with a network of communities whose users post news stories, images, videos, and links.  A user's standing within these communities is determined by the content they share and its evaluation by other users. Reddit also is well known for its online discussion forums on politics, entertainment, and other topics. Reddit faces a long list of competitors, including Facebook Inc. (FB), Twitter Inc. (TWTR), and Google parent Alphabet Inc. (GOOGL). Some lesser-known competitors include Digg, Tumblr, Quora, 9GAG, and Gizmodo Media Group.

Fundraising and Financials

Reddit was valued at $6 billion in its latest round of funding, which took place in February 2021. The company raised another $250 million in the latest round, which was led by Vy Capital. Reddit was previously valued at $3 billion after raising $300 million in its last funding round in February 2019, including investments from Tencent Holding Ltd. (TCEHY), Sequoia Capital, Fidelity, Tacit Capital, and Snoop Dogg. Reddit has raised about $800 million in total funding to date.

The company boasts over 52 million daily active users and more than 50 billion average screen views per month on its website. Reddit generated more than $100 million in total ad revenue in 2019 and that figure is expected to rise over 70% for 2020, Chief Operating Officer (COO) Jen Wong told the Wall Street Journal late in 2020. Following Reddit's funding round in February 2019, CNBC estimated that the company was pulling in an average revenue per user (ARPU) of approximately $0.30, far less than Twitter's ARPU of $9.48 and Facebook's $7.37 at the time.

History and Leadership

The San Francisco, California-based company was founded in 2005 by Steve Huffman and Alexis Ohanian. The two were college roommates and founded the company soon after graduating from the University of Virginia. Reddit was acquired by Condé Nast Publications in 2006 and was subsequently spun off into an independent company in 2011. Huffman is Reddit's current CEO and serves as one of the company's board members. Ohanian stepped down as a board member in June 2020, and asked that he be replaced by a Black candidate. Reddit subsequently named Y Combinator CEO Michael Seibel as Ohanian's replacement.

Recent Developments

On March 5, 2021, Reddit announced the appointment of Drew Vollero as the company's first chief financial officer (CFO). Vollero has more than 30 years of experience leading finance functions at different companies in order to position them for growth. He most recently worked as CFO at Allied Universal and he also served as Snap Inc.'s (SNAP) first CFO. The new appointment comes as Reddit explores the possibility of going public. CEO Steve Huffman told the Wall Street Journal that the company is in the initial stages of exploring an initial public offering (IPO), but the timing for doing so has yet to be determined.

On December 13, 2020, Reddit announced that it had acquired short-form video social platform Dubsmash, which offers a free app for creating and sharing user-generated videos. Financial terms of the deal were not disclosed.

How Reddit Reports Diversity & Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Reddit and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Reddit releases. It shows Reddit does not disclose any data about the diversity of its board of directors, C-Suite, general management, and employees overall. It also shows Reddit does not reveal the diversity of itself by race, gender, ability, veteran status, or LGBTQ+ identity.

Article Sources

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