Unruly Reddit prepares for stock market debut with ads deals

Reddit, the home of the anarchic r/WallStreetBets trade-tipping forum, is preparing for its own stock market debut by stepping up its push to build an advertising business around the social media platform.

The San Francisco-based group, led by 38-year-old chief executive Steve Huffman, has been approaching big ad agencies such as global giant WPP in the search for new marketing deals that can underpin its future business, according to several people familiar with the situation.

Reddit is making a tricky pitch. The company is inviting brands to target its highly engaged and loyal communities, even if their edgy discussions are not traditionally the sort that risk-averse companies want to be associated with.

That has left Reddit, known as a bastion of free speech, walking a delicate tightrope between its outspoken audience of 330mn monthly active users and new advertisers that can propel it into profitability. The same conundrum around content moderation still affects listed tech groups, such as Facebook and Spotify.

“More brands are being open to them,” said David Jones, chief executive of The Brandtech Group and former CEO of Havas, noting Reddit’s “influential” and tech-savvy user base. “When memestock mania happened, it showed there’s a huge amount of power there.”

Reddit expects to launch an IPO this year, after lodging a confidential filing to go public with the US Securities and Exchange Commission in December. One person briefed on the plans pointed to past media reports suggesting the company would seek a valuation of up to $15bn. Reddit was valued at $10bn after a funding round last August led by Fidelity Investments. To date, Reddit has raised a total of $1.3bn, according to data from PitchBook.

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As part of its transformation, the company is exploring a partnership deal with WPP, the world’s biggest ad agency, according to two people with direct knowledge of the talks. Such deals typically grant an agency’s clients discounts or early access to ad products in return for a commitment on spending from the agency. Reddit declined to comment.

Mark Read, chief executive of WPP, also declined to comment on a potential partnership, but described Reddit as a “unique property” that was attractive to his agency’s clients in gaming, tech and the automotive sector. He added that after spending “close to zero” on the platform several years ago, WPP’s clients were spending “double-digit millions of dollars”. 

Last year, Reddit set up its first in-house creative agency called KarmaLab and launched a new ad product that can be embedded within its conversation threads after testing it with 600 advertisers, including HBO Max and Adobe.

Reddit has also bolstered its leadership team. It hired its first chief financial officer Drew Vollero last year, who previously helped Snapchat’s parent Snap go public in 2017. It also pushed into new formats such as video, following in the wake of dominant players TikTok and Facebook.

Founded in 2005 by Huffman alongside Alexis Ohanian and Aaron Swartz, the self-declared “front page of the internet” has taken longer to grow than its social media peers, catering initially to niche gaming subcultures, sardonic humour and meme lovers.

Over the past three years, the company has sought more mainstream appeal, attempting to cash in on users who gather on “subreddit” message boards to discuss everything from sports and cryptocurrencies to relationships and politics.

The push has involved aggressively wooing brands and large ad agencies such as Omnicom Group, whilst simultaneously seeking to temper the dark underbelly of the platform — once a hotbed for far-right and misogynist groups — after years of criticism for perceived underpolicing.

Pressure to flush out extremist users came to a head in 2020 when the company took down r/thedonald, a controversial 729,000-strong subreddit, which was home to racism, conspiracy theories and violent speech.

Huffman is behind a light-touch approach to moderation, but offers brands more control over where their ads are placed. On top of some automated moderation, he has argued that the platform’s voting system, which allows users to “upvote” or “downvote” posts, “essentially turns every user into a content moderator”. 

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Data from eMarketer estimates that Reddit roughly doubled its revenues from $161mn in 2020 to $305mn last year and forecasts that turnover will grow almost 40 per cent this year to $424mn. 

“On Reddit, you don’t aimlessly scroll on your feed and stumble upon something. It’s a dream from a client perspective,” said Simona Marmina, senior director of paid social at global media agency Wavemaker, adding that the platform also boasts high time spent — an average of 34 minutes per user per day.

An analyst at extremism monitoring firm Miburo, who spoke in anonymity because of fears of repercussions from Reddit users, argued that “their AI moderation and their reliance on self-moderation is not completely effective”, adding that many extremists groups adopt code words in order to avoid being caught by filters.

Several advertising industry executives said they were less receptive to the platform, questioning whether interest-based advertising was a scalable business. Compared to giants such as Google and Facebook, the data that Reddit holds on users is limited, as “Redditors” use online aliases rather than their real identities.

“They’re terrified of their user base which constrains their ability to build an ad product,” said a senior advertising agency executive, who argued there was an unwillingness at Reddit to find innovative ways for brands to promote themselves for fear of upsetting users who dislike advertising. “It’s just all these stumbling blocks. It’s not going to play out well.” 

However, the company can profit from a “totally untapped international market”, according to Andrew Lipsman, principal ecommerce analyst at Insider Intelligence. Reddit recently opened offices in the UK, Canada and Australia.

Lipsman said Reddit was exploring different sources of revenue such as premium subscriptions, cryptocurrencies and facilitating more commerce. “Those could be the seedlings of what could become a more formidable business,” he added.