The legendary internet forum Reddit is finally going public, and it’s setting an ambitious price tag that could value the company at over $5 billion. In its latest S-1 filing, Reddit revealed plans to price its IPO shares between $31 and $34, which would give it a market capitalization ranging from $4.93 billion all the way up to $6 billion or more.
On the surface, a multi-billion dollar valuation for the profitless, ads-driven social platform might seem steep. After all, Reddit’s current revenue multiple of 6.9x to 8x its 2023 sales of $804 million places it closer to richly-valued Meta than the cheaper Snap. For a mature internet company dependent on the fickle advertising market, that’s a premium price.
However, Reddit has a major asset that justifies the lofty valuation expectations – its unparalleled trove of data that could prove to be a gold mine for AI companies.
In January 2024, Reddit signed lucrative data licensing deals worth a staggering $203 million in aggregate contract value. The multi-year agreements give third parties access to search and analyze the entire Reddit data corpus, an incredibly rich dataset continually expanding through user interactions across thousands of communities.
While Reddit kept the buyers anonymous, it’s not hard to connect the dots to AI firms like OpenAI, whose CEO Sam Altman holds an 8.7% stake in Reddit as the third-largest shareholder. For large language model builders, the endless stream of authentic internet conversations and crowd-sourced content on Reddit is precisely the kind of training data they crave.
Reddit’s IPO filing notes that it expects a minimum of $66.4 million in revenue just from these AI data deals in 2024, with more to come in subsequent years. That’s likely just the start as AI models grow ever more data-hungry and competition for high-quality training datasets intensifies.
In many ways, Reddit finds itself in an enviable position akin to the savvy merchants who sold picks and shovels during the Gold Rush era. While not an AI company itself, Reddit’s vast database of user-generated content positions it to be the proverbial data supplier for the AI gold miners of this technological age.
Of course, monetizing user data raises privacy concerns that Reddit will need to navigate carefully. Some Redditors have already voiced discomfort over the relationship between their online haven and AI firms. However, the revenue potential of these AI deals may prove too tempting for the company to ignore, especially as it prepares to go public and faces pressures to deliver growth.
Regardless of any debates around data ethics, Reddit’s unique origins and evolution into one of the internet’s most vibrant communities have bestowed it with an incredibly valuable resource – a dynamic, ever-expanding dataset that could fuel the next generation of AI breakthroughs.
As it prepares to hit the public markets at a multi-billion dollar valuation, Reddit has its loyal community to thank for more than just active users and engagement. The true hidden gem lies in the very substance of those online conversations, a rich vein of data that AI prospectors are hungrily mining. In the new AI gold rush, the once antiquated Reddit may have just struck the biggest payload yet.