Sacra Logo
View PDF
View Model
Details
Headquarters
San Francisco, CA
CEO
Steve Huffman
Website
Home  >  Companies  >  Reddit
Reddit
Reddit is a community-centric social media platform.

Revenue

$804.00M

2023

Valuation

$10.00B

2023

Growth Rate (y/y)

20%

2023

Funding

$1.30B

2023

Revenue

None

Reddit generated $804M in revenue in 2023, up 20% from $668M in 2022.

Reddit’s growth over the last 2 years has largely come from its growing advertising business—spending on Reddit by large advertisers increased 31% in 2022, even as overall, advertising spend declined through each of the last 6 months of 2022—as well as from the growth of its $6 per/month Reddit Gold premium subscription product.

Among the major social media platforms, only TikTok (89% growth) grew ad spend more than Reddit in 2022—Meta grew 22%, Snap grew 16%, and Pinterest grew 7%, while Twitter declined 13%.

None

The increase of advertiser attention in Reddit is likely connected to the popularity of the platform itself, especially via search—which as of 2022 is growing faster than ever before.

While major social media platforms like Facebook and Pinterest have plateaued or begun to decline in their overall popularity, Reddit’s popularity as a destination is still growing.

None

Reddit still has significant upside to continue capitalizing on that growing popularity by growing their ARPU—Reddit’s revenue per monthly user is roughly $1.19, up from 2021 when it was about $0.81. Compare that to ~$10 per monthly active user for Twitter, ~$45 for Facebook, and ~$35 for Instagram.

Business Model

The majority of Reddit’s revenue today comes from their advertising business, which currently accounts for about 3% of all advertising spend across the big six social media networks (Meta, Snap, TikTok, Twitter, Pinterest and Reddit).

Advertising

Reddit first launched advertising in 2009—4 years after their initial launch—allowing companies to pay for sponsored links on the homepage. Over time, Reddit enabled the option to target a specific subreddit or Reddit community, making Reddit ads useful for advertisers hoping to get in front of people interested in specific topics.

Reddit sells ads in two ways: managed service for large advertisers who spend more than roughly $10,000 quarterly and an auction-based system for everyone else. Advertisers with managed services get a dedicated account management team and a suite of tools, while others bid to select which ads show up based on a click per thousand model.

Today, Reddit serves a different purpose for advertisers than other social networks—its  community-based audience allows businesses to target niche profiles of customers. Additionally, the majority of Redditors don't use other social media apps, such as Facebook (23%), Instagram (47%), and TikTok (69%), so businesses can reach an audience they won't find anywhere else.

Reddit Premium

Reddit offers a premium membership product for $6 per/month that lets users remove advertisements from their feed, access a special members-only subreddit, and give out Reddit coins—like virtual currency—to other users. Reddit is estimated to have had roughly 344,000 Reddit Premium subscribers as of the end of 2021.

Product

Reddit launched in 2005 as a social news aggregator platform, similar to previous websites like Digg and Slashdot where users could submit articles, discuss them, and either vote content up or down.

Two key design decisions allowed Reddit to grow to billions of page visits per month while Digg and Slashdot largely stagnated.

Rather than treat the piece of content being aggregated as the primary object of interest, Reddit made the conversation the centerpiece—where Digg hid threads that went past 2 comments, Reddit showed and encouraged long discussions full of replies. Secondly, Reddit, unlike Slashdot, kept an extremely lax approach towards moderation—unlike Slashdot with its time-consuming moderation queue.

As content sites added Reddit “share” buttons to their posts, it fed a flywheel of content being posted to and discussed on Reddit that grew Reddit into a major source of news stitched together with a social network—albeit not one based on real identities but user names. Today, more than 50 million people use Reddit every day.

The basic building block of Reddit are subreddits, communities of like-minded folks who gather to chat about specific topics. They're unique because each of them has a specific theme for submissions, their own moderators, and specific rules, leading to a strong sense of belonging for members within the subreddit. Interactions aren't just limited to a person's circle of friends or number of followers.

None

The home page is composed of the most popular posts from each default subreddit, introducing new users to the site who've created a profile that comprises a name and an avatar. Then, they can browse the home page to see what’s currently trending and use filters to sort info.

Competition

None

Reddit operates in a highly competitive space. Although Big Tech rules the social media landscape, smaller enterprises have carved out niches, eating into Reddit’s market share.

Big Tech: Unlike Reddit, Big Tech social media focuses more on experiences organized around individuals. Many people use these platforms to stay in touch with friends and family. Reddit, on the other hand, revolves around communities. Users prefer anonymity and frequent the site to catch up on the news.

Since Big Tech is so mainstream and caters to a wide variety of people, it dominates digital advertising. In Q4 2020, Meta achieved ad revenues of $27.2B, comprising nearly all (96.8%) of total revenue for the entire quarter. Twitter generated $5B in revenue in 2021, 92% of which came from advertising, a 35% surge YOY. The platform serves as a marketing tool for 67% of all B2B enterprises.

Niche social networks: Reddit covers a broad spectrum of topics, which is ideal for people seeking to gain general knowledge. However, those who desire to dive deeper into a specific subject will be found wanting and are suited to niche social networks that focus on a particular subject. Product Hunt is geared towards sharing and uncovering new products and Stack Overflow is a platform dedicated to programmers. Both go in-depth on their respective niche.

Direct competitors: Open discussion sites that aggregate news may not be as well-known as Big Tech, but they’re still powerful channels. Quora is a close alternative. The main difference is that Quora adopts a Q&A format, while Reddit is more open-ended and casual.  

TAM Expansion

Steadily growing market: The global social media advertising market is projected to hit $262.6B by 2028, expanding at a CAGR of 12.4% from 2021 onward. Social media ads are becoming increasingly popular in emerging economies that lack the resources to implement costlier strategies. Additionally, brands are gaining awareness of the importance of having a strong social media presence.

Zooming out, 58.4% of the world’s population uses social media. It’s now part of people’s routine with the average person switching between seven different social networks per month. Social media, as a whole, has increased at a CAGR of 12% since 2012. Companies like Reddit, which allow people to discuss a wide range of topics, have various growth opportunities.

Reddit API: Reddit’s content has become an increasingly important input into the training and fine-tuning of AI large language models (LLMs). Recently, Reddit announced that it would look to begin monetizing this usage of its platform, and levy a fee on developers who want to be able to crawl and ingest data from Reddit for the purposes of training AI models.

None

International expansion: In 2021, Reddit set up operations in Canada, Australia, and the UK; other countries are on the roadmap. The platform also launched multilingual capabilities with the app’s main interface, including buttons and menus, available in German, French, Portuguese, Italian, and Spanish. Bolstering its global presence enables the company to attract advertisers abroad and increase exposure to new audiences.

Risks

Privacy issues: Over its history, Reddit has endured several critical data breaches, most notably in 2018 when hackers intercepted SMS verification and obtained all data from before 2007, including account credentials. Although all companies face cybersecurity threats, Reddit must be especially careful because the majority of its users highly value anonymity. 

Advertising challenges: Reddit’s primary revenue source is advertising. However, the nature of Reddit’s content has historically been a stumbling point for big corporates looking to promote on the platform—24% of the top 5,000 subreddits on Reddit are NSFW. Brand managers are wary of placing their ads next to explicit content. Other social networks, like Facebook and Twitter, require users to register by submitting personal info.

Disclaimers

This report is for information purposes only and is not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to your individual circumstances or otherwise constitutes a personal trade recommendation to you.

This research report has been prepared solely by Sacra and should not be considered a product of any person or entity that makes such report available, if any.

Information and opinions presented in the sections of the report were obtained or derived from sources Sacra believes are reliable, but Sacra makes no representation as to their accuracy or completeness. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a determination at its original date of publication by Sacra and are subject to change without notice.

Sacra accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to Sacra. Sacra may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect different assumptions, views and analytical methods of the analysts who prepared them and Sacra is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report.

All rights reserved. All material presented in this report, unless specifically indicated otherwise is under copyright to Sacra. Sacra reserves any and all intellectual property rights in the report. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of Sacra. Any modification, copying, displaying, distributing, transmitting, publishing, licensing, creating derivative works from, or selling any report is strictly prohibited. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of Sacra. Any unauthorized duplication, redistribution or disclosure of this report will result in prosecution.

News