Summary
Reddit, as a newly public company, may face increased scrutiny and need to invest heavily in content moderation. The reliance on volunteers may not be sustainable, with analysts warning of potential disruptions. The company’s revenue of $804 million in 2023 highlights the need for more professional moderation. The company is already investing in safety tools and artificial intelligence to enforce content policies. Successfully debuting on the stock market, Reddit’s shares saw a 48% gain on their first day, indicating investor interest in the company despite its lack of annual profit. Continued monitoring of the stock’s performance is expected to provide insights into the market’s reception of new share issues.
Reddit may need to ramp up spending on content moderation
Reddit is facing the need to heavily invest in content moderation as it transitions into a public company, according to analysts. This shift could potentially challenge its longstanding strategy of relying on a volunteer workforce to maintain order on its platform.
During its initial public offering (IPO) filing, the newly listed company acknowledged that its unique approach to content moderation could result in disruptions. For instance, in 2023, several moderators protested against Reddit’s decision to charge third-party app developers for access to its data.
Julian Klymochko, CEO of Accelerate Financial Technologies, emphasized that depending on volunteers is no longer sustainable for Reddit, especially considering the increased regulatory scrutiny it will now face. “It’s like relying on unpaid labor when the company has nearly a billion dollars in revenue,” he noted. Reddit reported revenue of $804 million in 2023.
As a result of the heightened regulatory environment, Reddit will need to make significant investments in trust and safety measures, which could lead to a substantial increase in expenses, Klymochko added.
A spokesperson for Reddit stated that in addition to moderators, the company has robust internal safety teams that utilize a combination of artificial intelligence, machine learning, and human review to enforce its content policy. This policy enables the banning of users and communities for engaging in harassment, inciting violence, or sharing hateful content.
Furthermore, Reddit invests in safety tools for moderators to streamline and automate their tasks, the spokesperson emphasized.
Ensuring the removal of offensive content is critical for social media platforms as it can impact advertisers who strive to prevent their ads from appearing alongside inappropriate material. The loosening of moderation policies by certain platforms, like Elon Musk’s X, has made advertisers cautious.
Josh White, a former economist at the Securities and Exchange Commission and assistant professor of finance at Vanderbilt University, highlighted that Reddit’s biggest risk lies in relying on unpaid volunteers. He suggested that the company must boost spending on anti-misinformation efforts, especially in the lead-up to the upcoming US presidential election.
“We believe our approach is the most sustainable and scalable moderation model that exists online today. We are continually investing in and iterating on new tools and policies to enhance our internal capabilities,” affirmed the Reddit spokesperson.
STELLAR DEBUT
Despite Reddit’s lack of annual profitability since its inception in 2005, Reddit’s shares surged by 48% in their debut on the New York Stock Exchange. This successful IPO was well-received by investors, although the stock was down nearly 5.4% on Friday.
Market analysts are closely monitoring the trading activity of Reddit’s stock in the coming weeks to gauge investor interest in new share offerings following a period of market stagnation.
“Reddit’s successful IPO signals a return to the pre-pandemic era when investors were willing to invest in loss-making companies with compelling narratives,” remarked Dan Coatsworth, an investment analyst at AJ Bell.
Notable investor Cathie Wood’s ARK Invest also acquired approximately 10,000 shares of Reddit on Thursday, as indicated in an email from the asset management firm.
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