Despite its prominent place in the internet world, Reddit is far from being a profitable company. In its first earnings report since its IPO in March, the company reported a quarterly loss of $575 million.
Reddit, which has posted losses in each of its last eight quarters, continues to focus on growth. The company’s strategy to increase revenues, according to its S-1 filing, will be realized by “increasing the growth and engagement of our communities.”
In the first three months of 2024, the number of daily active users reached 82.7 million, an increase of 37% compared to the same period last year. However, there’s a small problem with this statistic: most of the growth is coming from users who don’t log in to Reddit, i.e. “hidden”.
Reddit IPO aftermath: User growth vs. profitability concerns
According to Sherwood News, the social media site is seeing more growth from monitors (48%) than logged-in users (27%). Responding to questions from users who participated in the IPO and are now calling for earnings, Reddit‘s CEO Steve Huffman noted that the increase in Google search traffic has played a big role in the growth of watchers. Huffman emphasized that logged-in users are the core of our business, the foundation of our inventory, and demonstrating growth that there is a highly engaged audience available to advertisers. In its S-1 filing, Reddit notes that non-logged-in users “spend less time on the site and do not generate revenue at the same rate as logged-in users.” A key risk cited is that these users cannot be converted into actual Reddit users.
Reddit exists primarily as an online forum site and does not require a membership for users to access its content. This structure allows users to explore the site unregistered and allows the platform to reach a wider audience. However, if Reddit’s management were to force users to sign up for a membership in the future, the company would run the risk of losing a large number of users who do not want to log in. For this reason, Reddit needs to strike a good balance in its journey towards incorporation. It should continue its efforts to increase the number of registered users while at the same time not imposing excessive requirements on them. This strategy will both retain the existing user base and encourage new users to join the platform. Reddit’s CEO is of the same mindset.
When an analyst asked what Huffman and his team planned to do about this situation, Huffman suggested that this question was incorrect. Instead, he said, the company will focus on better monetizing users who are not logged in. “These are users,” Huffman said. “People who are on a Reddit platform for various reasons. We know that not everyone wants to join the community and have a deep experience in every session. Sometimes they’re just looking for the answer to a question, and that’s acceptable.”
Reddit needs to shape its future by prioritizing user experience, striking a balance between unregistered and registered users, and developing strategies to monetize both groups. This will unlock the potential to increase both user satisfaction and company profitability.
Featured image credit: Furkan Demirkaya
