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The internet economy is all about free labor. Facebook, Snap, Pinterest, and others offer forums, games, and videos for free. In return, billions of users provide posts, likes, photos, and social connections, which technology groups use to sell advertising. Presto: Free things can be turned into gold.
Reddit may be the hottest riff on the subject. The themed bulletin board company co-founded by Steve Huffman was one of the best-performing initial public offerings in 2024. The company’s stock price has quadrupled since its listing in March. Reddit has been around for nearly 20 years, but the excitement is new. Shares have risen by two-thirds since October, when the company announced it was back in the black thanks to increased advertising.
More than most internet groups, Reddit’s secret ingredient is people who work for love, not money. Its active “subreddits,” or niche communities, are founded and managed by free content moderators (or MODs) who encourage posting and ensure participants abide by the rules. They may not consider it labor, but from an investor’s perspective, it is.
The value created by this initiative is rapidly increasing. Reddit’s revenue increased 68% year-over-year in the third quarter, equating to 4 cents per user per day. Facebook owner Meta Platforms earns 13 cents per user per day, suggesting Reddit could grow even more in the future. The company is testing ads that appear inside user comments and translations powered by artificial intelligence to tap into new markets.
Keeping tens of thousands of free mods happy isn’t really free. Reddit offers editing tools and technology, but it’s expensive to build. And those relationships don’t always go smoothly. Last year, many MOD companies went on strike in the months before the company’s IPO. As advertising proliferates and investors become wealthier, striking a balance can become even more difficult.
On the other hand, Reddit also relies on a large amount of another type of traffic: traffic from Google. More than half of your visitors are in a so-called “logged out” state, which usually means visitors from search engines. That steady flow could be curtailed if Google decides that Reddit threatens, rather than embellishes, its search service and diminishes its visibility.
That’s why Huffman maintains his greatest asset: the integrity of his loyal mods and followers. Maintaining that harmony could slow Reddit’s revenue growth over time, potentially jeopardizing the company’s lofty valuation of 13 times estimated earnings. Still, some premium seems warranted. Few internet stocks have proven so adept at making labor of love pay off.
john.foley@ft.com
