From Bloomberg, February 22:
The company’s IPO prospectus makes clear how dependent it is on unpaid labor and the whims of its community.
Reddit’s prospectus
for its initial public offering finally dropped on Thursday, complete
with the customary list of “risk factors” that the company thinks could
give it headaches in the years ahead as a public company. At 40,000
words, it’s longer than Facebook’s and Twitter’s risk factor statements
combined at the time of their listings.
As
with IPOs past, many of them are boilerplate. An earthquake would be
bad for Reddit’s business, for instance, particularly if it happens to
occur within shaking distance of the company’s San Francisco
headquarters. Also, the company faces many external threats common among
several companes, such as losing the traffic it gets from Google, a
collapse in the online advertising economy or the threat of World War
III. All standard stuff.
Where Reddit differs among its tech peers — and where the company needs
to go into great detail — is in its striking dependence on its user base
to keep things operational. More so than any other online business I
can remember, Reddit must keep its users satisfied on several important
and delicate fronts.
First, it acknowledges that efforts to expand its limited (and already
unpopular) advertising formats could send users packing. The majority of
the company’s 73 million daily active users are there just to browse.
Pulling up stakes and browsing elsewhere, if the ads become too
annoying, is trivial when compared with the gargantuan effort required
to leave Facebook, X or other platforms. Even if they don’t leave,
Reddit users lean toward the tech savvy and won’t hesitate to employ ad
blockers in large numbers (if they don’t already). For the past two
years, the filing stated, 98% of Reddit’s revenue is made up of
advertising income. And of that, 26% came from just 10 ad clients in
2023. Investors will be watching this closely and expect more diversity
sooner rather than later.
Then,
there’s the small matter of all the unpaid labor it relies on to keep
things even remotely civil. There were 60,000 active daily moderators
using the platform in December 2023, the filing stated, though it didn’t
offer any historical comparisons — investors may want fuller
disclosures around that figure to determine whether the number of active
moderators is declining. That worked out to just more than 1,200 users
for each moderator.
The
going rate for a content moderator around the world varies greatly, but
for the sake of expedience, let’s say it might average around $50,000 a
year. That’s $3 billion worth of free labor. Reddit has only 2,013
full-time employees of its own and thus is relying on these passionate
volunteers to stop its website from descending into chaos and keep
advertisers from rushing to the exits.
As
the site grows, the job of moderator becomes more burdensome for the
volunteer and riskier for the company. “Mods,” as they are known, may
disagree with the company on what constitutes offensive or inappropriate
behavior, and as efforts to monitize grow, this will be a flashpoint.
The site, it’s worth stating, is chock-full with pornography, some of
which might be considered, by some, as pushing the boundaries of the
morally acceptable. Even those users who don’t consume that content will
reflexively resent any efforts to sanitize one of the edgier corners of
the internet.
Fallout
could be swift and effective, the filing warns. “Moderators can also
band together and, for various reasons, decide to shut down the normal
operation of their communities” and “reduce the amount of monetizable
content generated by Redditors.” This could all happen in a flash,
though the company said that a recent coordinated protest — in which
several popular subreddits shut themselves down — did not have a
material effect on the business....
....MUCH MORE
Couldn't have put it better myself, although I tried:
February 18
Ahead Of IPO Reddit Has A New AI Training Deal To Sell User Generated Content
Sounds like Arianna Huffington and the unpaid contributors at the Huffington Post.
February 22"Reddit is going public and inviting power users to invest" (plus semi-variance vs. standard deviation as a risk measurement) Following
on the dirty hedge post immediately below, this is more akin to a
"Texas-hedge" by Reddit management. Unlike a hedge which (theoretically)
reduces exposure,
a Texas hedge increases exposure to risk.
There are many explanations of the origin of the term but the one time I
saw it put into action was when a trader was long an equity option
position and bought the underlying to goose the option into the money
for what reason I know not. That same guy used to mark the close on
positions that were close to getting him a margin call, a different form
of increasing your risk and illegal in most jurisdictions, further
increasing your risk.
The reason the Reddit management's
game-plan increases their risk is if the stock goes south after the IPO
they will not only have a loss but also have a bunch of their
power-users angry with them. Power-users who have a platform they can
use to vent/cathart or boycott as they may see fit....
