reddit

reddit-faces-new-reality-after-cashing-in-on-its-ipo

Reddit faces new reality after cashing in on its IPO

r/WallStreetBets —

Reddit must now answer to its shareholders as well as its vocal users.

Steve Huffman

Enlarge / Steve Huffman, u/spez on Reddit, sold 500,000 of his shares in Reddit’s IPO on Thursday

AFP via Getty Images

In an interview on the New York Stock Exchange trading floor ahead of Reddit’s market debut on Thursday, chief executive Steve Huffman acknowledged that the mischievous retail investors that congregate on the social media platform might deliberately drive down its share price.

“It’s a free market!” he said.

For Reddit, as for Huffman, the bet on a public offering for a site he described as a “fun and special, but sometimes crazy place” has appeared to pay off.

Shares of the social media company soared on its Big Board debut under the ticker RDDT, closing at $50.44, or 48 percent above its IPO price. This brought its fully diluted market capitalization to $9.5 billion, close to where the company was last valued privately at $10 billion in 2021.

Reddit’s journey to public markets marks a turning point for a fringe, free speech-oriented platform dominated by esoteric memes, sardonic humor, and gamers, as it transforms itself into a more mainstream discussion hub that enforces stricter moderation rules in order to attract advertising dollars.

The picture for its earlier investors was mixed. One big winner was the Newhouse family, who through Advance Magazine Publishers Inc own Condé Nast, which bought Reddit in 2006 for $10 million before spinning it out in 2011. Its shares are now worth about $2.1 billion, a handsome windfall to their publishing empire, which also includes Vanity Fair, the New Yorker, and Vogue. Entities affiliated with OpenAI chief executive Sam Altman now hold a stake worth $613 million.

But investors who put money in at the last financing round in 2021 at $61.79 a share, such as Fidelity, were looking at slightly less on that particular investment.

Founded in 2005, the self-proclaimed “front page of the internet” has battled through management upheaval and moderation scandals to grow to 73 million daily users across its 100,000 communities, or “subreddits,” per Reddit parlance. It is a social media minnow, however, relative to Meta or X, which have more than 2.1 billion and 245 million daily active users, respectively.

Still, its IPO attracted institutional interest. Demand was strong, and the top two dozen investors in the deal, who received the majority of its shares, were typically large asset managers who intend on owning the stock for the long term, one person familiar with the matter said.

Reddit’s surge on its first day of trading, a day after AI infrastructure group Astera Labs jumped 72 percent in its Nasdaq debut, also signals a validation of public investor demand for listings—even a company that is unprofitable, such as Reddit.

“Overall, this is a very positive development for IPO markets [and] should bode well for many of the pre-IPO companies sitting in the queue,” said Christian Munafo, chief investment officer of Liberty Street Advisors.

But, Munafo said, “while [Reddit] performed well out of the gate, the stock may come under pressure unless they are able to demonstrate better growth and monetization.”

Either way, the deal is a boon for Huffman. The chief executive sold 500,000 of his shares in the IPO, cashing out a plump $17 million, and is due to receive additional equity awards as a result of listing the company above a $5 billion valuation. He also received an estimated $193 million pay package last year, mostly made up of equity awards, according to filings.

Historically, Huffman’s style as a leader has reflected that of Reddit’s unruly user base. The self-confessed “internet troll” initially squirmed at the idea of policing the more extreme communities hosted on the platform, relying on these groups to create their own rules and self-moderate. He has defended and cheered on Reddit’s WallStreetBets trading forum that shot to mainstream fame when members collectively bought so-called meme stocks in a bid to squeeze hedge funds*.

But Huffman has recently been forced to tidy up the darker underbelly of the platform for advertisers, present a more professional front to Wall Street and hunt harder for profitability. As a result, Reddit has shifted its ambitions slightly to pin its fortunes to wider tech trends. When Reddit first filed for an IPO in 2021, AI was mentioned once in its prospectus. In the 2024 version, AI appeared more than 60 times.

Nevertheless, the approach has left Huffman and the company at odds with some Reddit communities, who have been resistant to any changes to the platform. Facing new pressures as it enters public markets, some analysts warn that Reddit’s character could be destroyed and users may seek out alternatives, in a drag to the company.

“Reddit, more so than many social media platforms, has been a very community-based, non-commercial space and people know and love it for [this],” said Samuel Woolley, a propaganda expert and assistant professor at the University of Texas at Austin.

“I think the big question that should be on everyone’s mind for Reddit is to what extent the IPO will change the very nature and fabric of the platform.”

Additional reporting by Nicholas Megaw in New York.

© 2024 The Financial Times Ltd. All rights reserved. Not to be redistributed, copied, or modified in any way.

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reddit-cashes-in-on-ai-gold-rush-with-$203m-in-llm-training-license-fees

Reddit cashes in on AI gold rush with $203M in LLM training license fees

Your posts are the product —

Two- to three-year deals with Google, others, come amid legal uncertainty over “fair use.”

Enlarge / “Reddit Gold” takes on a whole new meaning when AI training data is involved.

The last week saw word leak that Google had agreed to license Reddit’s massive corpus of billions of posts and comments to help train its large language models. Now, in a recent Securities and Exchange Commission filing, the popular online forum has revealed that it will bring in $203 million from that and other unspecified AI data licensing contracts over the next three years.

Reddit’s Form S-1—published by the SEC late Thursday ahead of the site’s planned stock IPO—says the company expects $66.4 million of that data-derived value from LLM companies to come during the 2024 calendar year. Bloomberg previously reported the Google deal to be worth an estimated $60 million a year, suggesting that the three-year deal represents the vast majority of its AI licensing revenue so far.

Google and other AI companies that license Reddit’s data will receive “continuous access to [Reddit’s] data API as well as quarterly transfers of Reddit data over the term of the arrangement,” according to the filing. That constant, real-time access is particularly valuable, the site writes in the filing, because “Reddit data constantly grows and regenerates as users come and interact with their communities and each other.”

“Why pay for the cow…?”

While Reddit sees data licensing to AI firms as an important part of its financial future, its filing also notes that free use of its data has already been “a foundational part of how many of the leading large language models have been trained.” The filing seems almost bitter in noting that “some companies have constructed very large commercial language models using Reddit data without entering into a license agreement with us.”

That acknowledgment highlights the still-murky legal landscape over AI companies’ penchant for scraping huge swathes of the public web for training purposes, a practice those companies defend as fair use. And Reddit seems well aware that AI models may continue to hoover up its posts and comments for free, even as it tries to sell that data to others.

“Some companies may decline to license Reddit data and use such data without license given its open nature, even if in violation of the legal terms governing our services,” the company writes. “While we plan to vigorously enforce against such entities, such enforcement activities could take years to resolve, result in substantial expense, and divert management’s attention and other resources, and we may not ultimately be successful.”

Yet the mere existence of AI data licensing agreements like Reddit’s may influence how legal battles over this kind of data scraping play out. As Ars’ Timothy Lee and James Grimmelmann noted in a recent legal analysis, the establishment of a settled licensing market can have a huge impact on whether courts consider a novel use of digitized data to be “fair use” under copyright law.

“The more [AI data licensing] deals like this are signed in the coming months, the easier it will be for the plaintiffs to argue that the ‘effect on the market’ prong of fair use analysis should take this licensing market into account,” Lee and Grimmelmann wrote.

And while Reddit sees LLMs as a new revenue opportunity, the site also sees their popularity as a potential threat. The S-1 filing notes that “some users are also turning to LLMs such as ChatGPT, Gemini, and Anthropic” for seeking information, putting them in the same category of Reddit competition as “Google, Amazon, YouTube, Wikipedia, X, and other news sites.”

After filing for its IPO in late 2021, reports suggest Reddit is aiming to hit the stock market next month officially. The company will offer users and moderators with sufficient karma and/or activity on the site the opportunity to participate in that IPO through a directed share program.

Advance Publications, which owns Ars Technica parent Condé Nast, is the largest shareholder of Reddit.

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reddit-admits-more-moderator-protests-could-hurt-its-business

Reddit admits more moderator protests could hurt its business

SEC filing —

Losing third-party tools “could harm our moderators’ ability to review content…”

Reddit logo on website displayed on a laptop screen is seen in this illustration photo taken in Krakow, Poland on February 22, 2024.

Reddit filed to go public on Thursday (PDF), revealing various details of the social media company’s inner workings. Among the revelations, Reddit acknowledged the threat of future user protests and the value of third-party Reddit apps.

On July 1, Reddit enacted API rule changes—including new, expensive pricing —that resulted in many third-party Reddit apps closing. Disturbed by the changes, the timeline of the changes, and concerns that Reddit wasn’t properly appreciating third-party app developers and moderators, thousands of Reddit users protested by making the subreddits they moderate private, read-only, and/or engaging in other forms of protest, such as only discussing John Oliver or porn.

Protests went on for weeks and, at their onset, crashed Reddit for three hours. At the time, Reddit CEO Steve Huffman said the protests did not have “any significant revenue impact so far.”

In its filing with the Securities and Exchange Commission (SEC), though, Reddit acknowledged that another such protest could hurt its pockets:

While these activities have not historically had a material impact on our business or results of operations, similar actions by moderators and/or their communities in the future could adversely affect our business, results of operations, financial condition, and prospects.

The company also said that bad publicity and media coverage, such as the kind that stemmed from the API protests, could be a risk to Reddit’s success. The Form S-1 said bad PR around Reddit, including its practices, prices, and mods, “could adversely affect the size, demographics, engagement, and loyalty of our user base,” adding:

For instance, in May and June 2023, we experienced negative publicity as a result of our API policy changes.

Reddit’s filing also said that negative publicity and moderators disrupting the normal operation of subreddits could hurt user growth and engagement goals. The company highlighted financial incentives associated with having good relationships with volunteer moderators, noting that if enough mods decided to disrupt Reddit (like they did when they led protests last year), “results of operations, financial condition, and prospects could be adversely affected.” Reddit infamously forcibly removed moderators from their posts during the protests, saying they broke Reddit rules by refusing to reopen the subreddits they moderated.

“As communities grow, it can become more and more challenging for communities to find qualified people willing to act as moderators,” the filing says.

Losing third-party tools could hurt Reddit’s business

Much of the momentum for last year’s protests came from users, including long-time Redditors, mods, and people with accessibility needs, feeling that third-party apps were necessary to enjoyably and properly access and/or moderate Reddit. Reddit’s own technology has disappointed users in the past (leading some to cling to Old Reddit, which uses an older interface, for example). In its SEC filing, Reddit pointed to the value of third-party “tools” despite its API pricing killing off many of the most popular examples.

Reddit’s filing discusses losing moderators as a business risk and notes how important third-party tools are in maintaining mods:

While we provide tools to our communities to manage their subreddits, our moderators also rely on their own and third-party tools. Any disruption to, or lack of availability of, these third-party tools could harm our moderators’ ability to review content and enforce community rules. Further, if we are unable to provide effective support for third-party moderation tools, or develop our own such tools, our moderators could decide to leave our platform and may encourage their communities to follow them to a new platform, which would adversely affect our business, results of operations, financial condition, and prospects.

Since Reddit’s API policy changes, a small number of third-party Reddit apps remain available. But some of the remaining third-party Reddit app developers have previously told Ars Technica that they’re unsure of their app’s tenability under Reddit’s terms. Nondisclosure agreement requirements and the lack of a finalized developer platform also drive uncertainty around the longevity of the third-party Reddit app ecosystem, according to devs Ars spoke with this year.

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reddit-sells-training-data-to-unnamed-ai-company-ahead-of-ipo

Reddit sells training data to unnamed AI company ahead of IPO

Everything has a price —

If you’ve posted on Reddit, you’re likely feeding the future of AI.

In this photo illustration the American social news

On Friday, Bloomberg reported that Reddit has signed a contract allowing an unnamed AI company to train its models on the site’s content, according to people familiar with the matter. The move comes as the social media platform nears the introduction of its initial public offering (IPO), which could happen as soon as next month.

Reddit initially revealed the deal, which is reported to be worth $60 million a year, earlier in 2024 to potential investors of an anticipated IPO, Bloomberg said. The Bloomberg source speculates that the contract could serve as a model for future agreements with other AI companies.

After an era where AI companies utilized AI training data without expressly seeking any rightsholder permission, some tech firms have more recently begun entering deals where some content used for training AI models similar to GPT-4 (which runs the paid version of ChatGPT) comes under license. In December, for example, OpenAI signed an agreement with German publisher Axel Springer (publisher of Politico and Business Insider) for access to its articles. Previously, OpenAI has struck deals with other organizations, including the Associated Press. Reportedly, OpenAI is also in licensing talks with CNN, Fox, and Time, among others.

In April 2023, Reddit founder and CEO Steve Huffman told The New York Times that it planned to charge AI companies for access to its almost two decades’ worth of human-generated content.

If the reported $60 million/year deal goes through, it’s quite possible that if you’ve ever posted on Reddit, some of that material may be used to train the next generation of AI models that create text, still pictures, and video. Even without the deal, experts have discovered in the past that Reddit has been a key source of training data for large language models and AI image generators.

While we don’t know if OpenAI is the company that signed the deal with Reddit, Bloomberg speculates that Reddit’s ability to tap into AI hype for additional revenue may boost the value of its IPO, which might be worth $5 billion. Despite drama last year, Bloomberg states that Reddit pulled in more than $800 million in revenue in 2023, growing about 20 percent over its 2022 numbers.

Advance Publications, which owns Ars Technica parent Condé Nast, is the largest shareholder of Reddit.

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reddit-must-share-ip-addresses-of-piracy-discussing-users,-film-studios-say

Reddit must share IP addresses of piracy-discussing users, film studios say

A keyboard icon for piracy beside letter v and n

For the third time in less than a year, film studios with copyright infringement complaints against a cable Internet provider are trying to force Reddit to share information about users who have discussed piracy on the site.

In 2023, film companies lost two attempts to have Reddit unmask its users. In the first instance, US Magistrate Judge Laurel Beeler ruled in the US District Court for the Northern District of California that the First Amendment right to anonymous speech meant Reddit didn’t have to disclose the names, email addresses, and other account registration information for nine Reddit users. Film companies, including Bodyguard Productions and Millennium Media, had subpoenaed Reddit in relation to a copyright infringement lawsuit against Astound Broadband-owned RCN about subscribers allegedly pirating 34 movie titles, including Hellboy (2019), Rambo V: Last Blood, and Tesla.

In the second instance, the same companies sued Astound Broadband-owned ISP Grande, again for alleged copyright infringement occurring over the ISP’s network. The studios subpoenaed Reddit for user account information, including “IP address registration and logs from 1/1/2016 to present, name, email address, and other account registration information” for six Reddit users, per a July 2023 court filing.

In August, a federal court again quashed that subpoena, citing First Amendment rights. In her ruling, Beeler noted that while the First Amendment right to anonymous speech is not absolute, the film producers had already received the names of 118 Grande subscribers. She also said the film producers had failed to prove that “the identifying information is directly or materially relevant or unavailable from another source.”

Third piracy-related subpoena

This week, as reported by TorrentFreak, film companies Voltage Holdings, which are part of the previous two subpoenas, and Screen Media Ventures, another film studio with litigation against RCN, filed a motion to compel [PDF] Reddit to respond to the subpoena in the US District Court for the Northern District of California. The studios said they’re seeking the information concerning claims they’ve made that the “ability to pirate content efficiently without any consequences is a draw for becoming a Frontier subscriber” and that Frontier Communications “does not have an effective policy for terminating repeat infringers.” The film studios are claimants against Frontier in its bankruptcy case. The studios are represented by the same lawyers used in the two aforementioned cases.

The studios are asking that the court require Reddit to provide “IP address log information from 1/1/2017 to present” for six anonymous Reddit users who talked about piracy on Reddit. Although, Reddit posts shared in the court filing only date back to 2021.

Reddit responded to the studios’ subpoena with a letter [PDF] on January 2 stating that the subpoena “does not satisfy the First Amendment standard for disclosure of identifying information regarding an anonymous speaker.” Reddit also noted the two previously quashed subpoenas and suggested that it did not have to comply with the new request because the studios could acquire equivalent or better information elsewhere.

As with the previously mentioned litigation against ISPs, Reddit is a non-party. However, since the film companies claimed that Frontier had refused to produce customer identifying information and Reddit responded with a denial to the requests, the film companies filed their motion to compel.

The studios argue that the information requests do not implicate the First Amendment and that the rulings around the two aforementioned subpoenas are not applicable because the new subpoena is only about IP address logs and not other user-identifying information.

“The Reddit users do not have a recognized privacy interest in their IP addresses,” the motion says.

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