Reddit's Resilience Turns It Into an Acquisition Target

Reddit's Resilience Turns It Into an Acquisition Target

For years, Silicon Valley has been obsessed with the plight of Reddit. The site, known for its comments section that can skew heavily towards toxicity, has struggled with moderating its platform despite attempts to introduce new policies and staff.

But the site's resilience and dominant position as a niche interest community hub have turned it into an acquisition target, according to a report by The New York Times. The site has bounced back from scandals and retains a steady user base, posting ad revenue figures that have impressed some of Silicon Valley's biggest players.

The Times reports that the company is now exploring its options, including going public or seeking a buyer. According to the report, Reddit's users are "its most significant asset," attracting active users and therefore advertisers, which could make it attractive to a larger tech company looking to acquire a loyal customer base.

It's not uncommon for larger tech companies to buy out smaller ones; sometimes, it's about removing competition, or it could be a means to acquire an asset, such as users, that the acquiring company doesn't have.

One such example is Google's 2013 acquisition of Frommer's travel guide. Google didn't just want the brand or the content; it wanted the community of loyal, passionate travelers who contributed to Frommer's forums and therefore helped create a wealth of travel-related information.

Reddit's roughly 100,000 active communities range from niche topics like dermatology, psychology, and European soccer to more mainstream ones such as the news, memes, and politics.

These communities are primarily moderated by volunteers contributing their expertise and judgment to keep communities vibrant and engaging.

Users are encouraged to participate in these communities and form close-knit cliques with similar enthusiasts who share their passion for topics like cats, the Beatles, or dark humor.

This is where the kernel of Reddit's value lies; in its devoted users and niche communities built around unusual interests. These are fertile grounds for cultivating interests and turning enthusiasts into dedicated fans.

Reddit's user growth has been relatively flat in recent years, with around 430 million monthly active users (MAU) worldwide in 2022, up only 10% from the previous year, according to our internal data.

However, these users create a vast pool of content, with posts and comments racking up hundreds of millions of views each day. Users also stick around for extended periods; on average, 9 minutes per day on the site, according to the Times, citing internal Reddit data.

This suggests that while Reddit has struggled to attract new users recently, it retains a loyal and engaged user base that sticks around. These users generate a vast amount of content, creating a valuable and attractive environment for potential acquirers.

And while the site has struggled to contain itself from various violations and toxic incidents, its users have proved resilient and forgiving. Recent controversies, such as the violent violence directed towards Grace Allison, the 22-year-old who was raped and murdered after posting a screenshot of her Reddit DMs on the platform, didn't cause an exodus of users.

On the contrary, users continued to engage on the site, largely unfazed by such incidents. This may be due to the site's culture of laughing at online misbehavior, often taking the form of humor about unpleasant events or attitudes.

Reddit is also known for its devout users, with many engaging with the site several times a day and participating in niche communities. This loyalty could make it valuable to acquire for a tech company looking to deepen its relationship with its customer base.

While Reddit may not be profitable yet, its investments in ad sales bolstered its projected revenue to around $400 million in 2022, according to the Times. That's a sizable jump from the $100 million in revenue in 2019, meaning the company has doubled its revenue in just three years.

projecting optimism about its future, Reddit raised $700 million in a recent funding round, implying that the company is in a strong position and expects to reap the benefits of its work in the coming years.

All this makes Reddit an attractive acquisition, with a rich base of users and communities that could be a trove of valuable data and insights for a larger tech company looking to understand and harness the power of online communities.

While Reddit has made attempts to curb toxic behavior and introduce new policies and staff members, it still struggles to contain harmful elements on its platform. Its user base has remained resilient, however, and its dominant position as a hub for niche interest communities makes it an attractive acquisition target for larger tech companies.

As Reddit explores its options, whether through an initial public offering (IPO) or a buyer, the company's resilience, and its users, remain its most valuable assets.