How Reddit can become profitable after its IPO, according to Redditors

Reddit is the solution to many of life’s minor problems. Need fan theories about the finale of True Detective: Night Country? Go on Reddit. Recently moved to a new city and want to join a running club? Reddit awaits. The so-called front page of the internet is a massive multiverse of message boards, boasting over 100,000 distinct communities. As some of its 73.1 million active daily users like to say, there’s a subreddit for almost anything. (Literally, in fact.) So, perhaps the solution to the problem of Reddit needing to make more money is lurking somewhere in one of those subreddits.

While the online megaforum launches its IPO, at an expected valuation of about $6.5 billion, the moment has been somewhat overshadowed by reminders that the company has never turned a profit in nearly 20 years of operation. Even with a reported 21% revenue growth in 2023, for instance, its net losses merely narrowed to $90.8 million. Reddit has lately been trying to whip up excitement for the IPO among its broad user base, offering its most active participants a chance to buy in early, but many of them have adamantly refused. Do they know something outsiders don’t? Since nobody has a handle on Reddit quite like its own users, Fast Company crowdsourced several Redditors’ ideas on how the company might become profitable, and asked business analyst Jeremy Goldman which of them he thought might actually succeed.

Goldman is senior director of marketing, commerce, and tech briefings at subscription-based market research shop Emarketer, and host of the Future Proof podcast. Almost as important, for the purposes of this analysis, he’s spent time in the Reddit trenches himself. As Emarketer’s foremost expert on the company, Goldman has created several accounts under the radar, to track the ways Reddit recognizes and targets its users. As such, he’s been monitoring with intense interest the occasion of Reddit’s long-awaited IPO, as a potential inflection point.

Here are the Redditor-sourced profit-making suggestions he weighed in on:

More targeted advertising

“They know who we are on Reddit anyway so they can target ads within Reddit specific to us,” Splashbodge says in r/Technology.

Scrolling through the average subreddit, users might find a promoted message from a brand somewhere around one out of every 10 posts. Those ads don’t currently appear well tailored to its (mostly anonymous) users, though. And as for advertisers, they still seem to view Reddit as a quirky, niche platform, rather than a substantial part of their social-investment strategy.

Goldman agrees this is a good idea but could be challenging to pull off. “If these are good native ads that feel organic to the platform and not interruptive, especially for newer users, it makes sense as something that could chip away at turning a profit,” Goldman says. “With Reddit, though, many of the users have been there a while, which makes the change harder. It’s also challenging to articulate to brands that these ads really work just because Reddit has a lot of information about what its users are interested in.”

“They’re sitting on many different gold mines (data, lucrative demographics to advertise to, partnerships with big brands, etc.) but they’re too damn stupid to do anything smart with them currently,” experiencednowhack says in r/Stocks.

Some of the most well-known subreddits, such as Am I The Asshole, and the megapopular Ask Me Anything forum for public figures, seem potentially ripe for partnerships with big brands.

“This is actually a really interesting prospect,” Goldman says. “I think if you have partnerships with major brands that can have a bigger takeover, like those YouTube takeover slots, it makes a lot of sense because of Reddit’s size. You can see them making a lot more brand deals where those brands are doing one-off sponsorships of particular subreddits or the whole entire site.”

Expand the premium model or offer custom features

“Use the current premium ad-free experience and expand it,” says c4ptnh00k in r/IntellectualDarkWeb. “Offer premium api offering vs free offering. Limit free api keys to throttle bots. You then would have two different sources of income. This would allow premium subscription features in the ui.”

Although Reddit already has a premium tier, offering an ad-free experience and access to the exclusive r/Lounge community for an annual fee of $72, many of the site’s heavy users want access to more custom features.  

Goldman sees some promise in this. “Most platforms have not done much of a good job in breaking out their premium. Snapchat Plus is the only one that’s really been successful,” Goldman says. “And part of the reason we believe Snapchat Plus has been successful, anecdotally, is because it has a lot of younger users whose parents are paying for it. So, I think with Reddit, it definitely might encourage more people to move toward premium if they start offering more custom features. But then, part of the challenge is that Reddit already needs those juicy features for their standard user base. If you lock those up for a time, when arguably they’re behind on the innovation front, that could be a problem.”

Pay CEO Steve Huffman less

“No profit but the CEO gets paid hundreds of millions? Okay. Great investment. Not,” says PriceNinja in r/Technology. 

Similar observations come up a lot on Reddit threads discussing the site’s potential profitability, mainly because Huffman’s $193 million compensation package has been a frequent talking point in the lead-up to IPO day. Would it lift Reddit’s bottom line if he were paid less?

Goldman doesn’t see reducing Huffman’s pay as the main solution to Reddit’s profitability problems. “If your CEO’s pay is the reason you’re not profitable, something has gone really wrong. Because it means that your company is far smaller than you’d like it to be. So, it’s certainly not the problem for Reddit in the long term.” Still, if Huffman’s compensation was closer to that of Mark Zuckerberg’s $27.1 million or Snapchat CEO Evan Spiegel’s $3.3 million, the company might be profitable now. 

Recruit highly qualified moderators and make them paid employees

“Maybe they can use the cash to hire some good mods,” says notaliberal2021 in r/Stocks, “since a majority of the ones we have now are so one-sided and power hungry.”

The fact that moderators work for free has long demonstrated the magnetic pull of Reddit. However, the laid-back fallibility of these nonemployees has led to some hate speech issues over the years, along with some banned subreddits. Perhaps putting professionals in more of those roles would make things generally run smoother and pave the way for brands to feel safer. At the same time, such a move might trade one problem for another, with safer subreddits alienating the portion of the user base that likes to post and engage with edgier content.

“I think they could work on supporting mods in a better way—incentivize people for brand safety and give them a cut in order to build stronger communities,” Goldman says. “But that only gets you a portion of the way there. You can’t give away too much to people running these communities if the entire point is profitability.”  

Sell Reddit to Meta or Google

“Reddit should be acquired by a corporation which already makes most of its money from doing something else, (one of the Internet providers, perhaps) who would then be willing to run it as a loss leader,” says SlayTheDragon in r/IntellectualDarkWeb.

In the lead-up to the IPO, Reddit announced it would be selling its nearly 20 years of unique user data for AI-training purposes. Since Google is already licensing Reddit’s content to train its AI models, perhaps it would consider springing for the whole shebang. 

Goldman doesn’t think such a deal would pass regulatory muster, but he suggests that if Google did eventually buy Reddit, Redditors might not be happy about that in the long term. “The last thing Google would do is make it very Google-y all of a sudden; they would instead probably play against type and prove to people that nothing’s going to change,” he says. “And then, when people have almost forgotten that Google bought Reddit and nothing changed, I’m talking years later, then that’s when you would start to see things changing and Google turning up the advertising spigot.”

Ultimately, Reddit has not yet demonstrated it can generate the level of revenue a platform of its size and tenure should. Becoming beholden to shareholders will only put more pressure on the company to find a way into the black, with no clear path to doing so without depressing the user base. It’s a complex conundrum that makes Goldman glad he’s not CEO of the company.

“Imagine you’re playing chess and you have a few different moves, but each one of them leads to checkmate,” he says. “That’s the challenge I think that Reddit is in.”

Reddit is the solution to many of life’s minor problems. Need fan theories about the finale of True Detective: Night Country? Go on Reddit. Recently moved to a new city and want to join a running club? Reddit awaits. The so-called front page of the internet is a massive multiverse of message boards, boasting over 100,000 distinct communities. As some of its 73.1 million active daily users like to say, there’s a subreddit for almost anything. (Literally, in fact.) So, perhaps the solution to the problem of Reddit needing to make more money is lurking somewhere in one of those subreddits.

While the online megaforum launches its IPO, at an expected valuation of about $6.5 billion, the moment has been somewhat overshadowed by reminders that the company has never turned a profit in nearly 20 years of operation. Even with a reported 21% revenue growth in 2023, for instance, its net losses merely narrowed to $90.8 million. Reddit has lately been trying to whip up excitement for the IPO among its broad user base, offering its most active participants a chance to buy in early, but many of them have adamantly refused. Do they know something outsiders don’t? Since nobody has a handle on Reddit quite like its own users, Fast Company crowdsourced several Redditors’ ideas on how the company might become profitable, and asked business analyst Jeremy Goldman which of them he thought might actually succeed.

Goldman is senior director of marketing, commerce, and tech briefings at subscription-based market research shop Emarketer, and host of the Future Proof podcast. Almost as important, for the purposes of this analysis, he’s spent time in the Reddit trenches himself. As Emarketer’s foremost expert on the company, Goldman has created several accounts under the radar, to track the ways Reddit recognizes and targets its users. As such, he’s been monitoring with intense interest the occasion of Reddit’s long-awaited IPO, as a potential inflection point.

Here are the Redditor-sourced profit-making suggestions he weighed in on:

More targeted advertising

“They know who we are on Reddit anyway so they can target ads within Reddit specific to us,” Splashbodge says in r/Technology.

Scrolling through the average subreddit, users might find a promoted message from a brand somewhere around one out of every 10 posts. Those ads don’t currently appear well tailored to its (mostly anonymous) users, though. And as for advertisers, they still seem to view Reddit as a quirky, niche platform, rather than a substantial part of their social-investment strategy.

Goldman agrees this is a good idea but could be challenging to pull off. “If these are good native ads that feel organic to the platform and not interruptive, especially for newer users, it makes sense as something that could chip away at turning a profit,” Goldman says. “With Reddit, though, many of the users have been there a while, which makes the change harder. It’s also challenging to articulate to brands that these ads really work just because Reddit has a lot of information about what its users are interested in.”

“They’re sitting on many different gold mines (data, lucrative demographics to advertise to, partnerships with big brands, etc.) but they’re too damn stupid to do anything smart with them currently,” experiencednowhack says in r/Stocks.

Some of the most well-known subreddits, such as Am I The Asshole, and the megapopular Ask Me Anything forum for public figures, seem potentially ripe for partnerships with big brands.

“This is actually a really interesting prospect,” Goldman says. “I think if you have partnerships with major brands that can have a bigger takeover, like those YouTube takeover slots, it makes a lot of sense because of Reddit’s size. You can see them making a lot more brand deals where those brands are doing one-off sponsorships of particular subreddits or the whole entire site.”

Expand the premium model or offer custom features

“Use the current premium ad-free experience and expand it,” says c4ptnh00k in r/IntellectualDarkWeb. “Offer premium api offering vs free offering. Limit free api keys to throttle bots. You then would have two different sources of income. This would allow premium subscription features in the ui.”

Although Reddit already has a premium tier, offering an ad-free experience and access to the exclusive r/Lounge community for an annual fee of $72, many of the site’s heavy users want access to more custom features.  

Goldman sees some promise in this. “Most platforms have not done much of a good job in breaking out their premium. Snapchat Plus is the only one that’s really been successful,” Goldman says. “And part of the reason we believe Snapchat Plus has been successful, anecdotally, is because it has a lot of younger users whose parents are paying for it. So, I think with Reddit, it definitely might encourage more people to move toward premium if they start offering more custom features. But then, part of the challenge is that Reddit already needs those juicy features for their standard user base. If you lock those up for a time, when arguably they’re behind on the innovation front, that could be a problem.”

Pay CEO Steve Huffman less

“No profit but the CEO gets paid hundreds of millions? Okay. Great investment. Not,” says PriceNinja in r/Technology. 

Similar observations come up a lot on Reddit threads discussing the site’s potential profitability, mainly because Huffman’s $193 million compensation package has been a frequent talking point in the lead-up to IPO day. Would it lift Reddit’s bottom line if he were paid less?

Goldman doesn’t see reducing Huffman’s pay as the main solution to Reddit’s profitability problems. “If your CEO’s pay is the reason you’re not profitable, something has gone really wrong. Because it means that your company is far smaller than you’d like it to be. So, it’s certainly not the problem for Reddit in the long term.” Still, if Huffman’s compensation was closer to that of Mark Zuckerberg’s $27.1 million or Snapchat CEO Evan Spiegel’s $3.3 million, the company might be profitable now. 

Recruit highly qualified moderators and make them paid employees

“Maybe they can use the cash to hire some good mods,” says notaliberal2021 in r/Stocks, “since a majority of the ones we have now are so one-sided and power hungry.”

The fact that moderators work for free has long demonstrated the magnetic pull of Reddit. However, the laid-back fallibility of these nonemployees has led to some hate speech issues over the years, along with some banned subreddits. Perhaps putting professionals in more of those roles would make things generally run smoother and pave the way for brands to feel safer. At the same time, such a move might trade one problem for another, with safer subreddits alienating the portion of the user base that likes to post and engage with edgier content.

“I think they could work on supporting mods in a better way—incentivize people for brand safety and give them a cut in order to build stronger communities,” Goldman says. “But that only gets you a portion of the way there. You can’t give away too much to people running these communities if the entire point is profitability.”  

Sell Reddit to Meta or Google

“Reddit should be acquired by a corporation which already makes most of its money from doing something else, (one of the Internet providers, perhaps) who would then be willing to run it as a loss leader,” says SlayTheDragon in r/IntellectualDarkWeb.

In the lead-up to the IPO, Reddit announced it would be selling its nearly 20 years of unique user data for AI-training purposes. Since Google is already licensing Reddit’s content to train its AI models, perhaps it would consider springing for the whole shebang. 

Goldman doesn’t think such a deal would pass regulatory muster, but he suggests that if Google did eventually buy Reddit, Redditors might not be happy about that in the long term. “The last thing Google would do is make it very Google-y all of a sudden; they would instead probably play against type and prove to people that nothing’s going to change,” he says. “And then, when people have almost forgotten that Google bought Reddit and nothing changed, I’m talking years later, then that’s when you would start to see things changing and Google turning up the advertising spigot.”

Ultimately, Reddit has not yet demonstrated it can generate the level of revenue a platform of its size and tenure should. Becoming beholden to shareholders will only put more pressure on the company to find a way into the black, with no clear path to doing so without depressing the user base. It’s a complex conundrum that makes Goldman glad he’s not CEO of the company.

“Imagine you’re playing chess and you have a few different moves, but each one of them leads to checkmate,” he says. “That’s the challenge I think that Reddit is in.”