With all of Reddit's recent news and releases, I wanted to write a post detailing Reddit's monetization efforts.
Reddit Awards
Reddit recently re-released awards, this time allowing people to react to posts with awards that are actually redeemable for money. Dubbed the contributor economy.
The model is supposed to follow something like Twitch where viewers can donate subs or bits to creators with quality content.
In theory, I think it's a great idea. I don't think we'll see the same interactions as we do on Twitch, where viewers primarily support their favorite streamers. But I do see a world where the contributor economy grows for things like: community fundraisers, donations to artists, etc.
The issue is that Reddit has done so little marketing for how the awards systems works, that hardly anyone knows how it works. If you look at the popular posts of the day, posts that have 50k upvotes might have 1 or 2 awards at most. Some of them do have awards, but most of them tend to be from the legacy gold system, where the awards aren't actually convertible to money.
Another issue is that the awards actually suck. I bought $50 in awards to test out the feature, and the images/emojis are actually terrible.
I see a world where these awards actually become an extremely profitable revenue stream, obviously not even close to Ads, but the feature in it's current state was extremely underwhelming.
Ads
I think Reddit's doing a great job with their advertising platform. Contrary to popular belief, I think Reddit actually has an excellent product for advertisers. Communities are quite neatly labeled, and advertisers can target the audience quite easily compared to other platforms.
They are doing a great job with marketing and building out a service center. I think it will continue to be a >90% revenue stream for Reddit as it grows.
The hard part is getting market share from companies that have historically advertised on Facebook, Instagram, etc.
Optimistically Reddit could grow this into a $10b ARR business within the next 5 years.
Partnerships and Data Licensing
Obviously with the growth in AI investment, Reddit is uniquely positioned to benefit a ton from this. There's no other platform on the planet with this much uniquely labeled current human interactions. Companies building AI, and perhaps other industries like Finance would invest in Reddit's data.
I think this could optimistically become a $2b ARR business in the next 5 years.
How does this affect market cap?
It all depends on how quickly these monetization efforts grow. In Q1, we saw a 50% yoy increase in revenue. If somehow, someway we that yoy increase hits 100%, we could see a market cap of 20-50X revenue. So if Reddit makes $2b next in 2025, and $4b in 2026, we could see a market cap increase of up to $200b.
I think that Reddit's monetization efforts are still in it's nascency. It could take 1 to 2 years for them to really start to explode. In which case, it's highly possible that Reddit hovers around the $10-$15b range.
But I truly think that Reddit is a generational platform, and you'll rarely get the opportunity to invest in a company with this much product success that is still in the early stages of monetization.
Leave a Reply