How Much Is Reddit Worth?

by Trefis Team
-8.93%
Downside
42.73
Market
38.92
Trefis
TWTR
Twitter
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Reddit – the news aggregation and social discussion website which calls itself the “front page of the internet” – is reportedly considering an IPO at some point, though the timeline is unclear. At its latest funding round, the company was valued at $1.8 billion and has a monthly active user base of nearly 330 million (almost as high as that of Twitter). Despite a strong and engaged user base – on average a user spends 15 minutes on Reddit’s platform per visit – Reddit’s revenues remain low. Controversial content such as leaked nude celebrity photos has been part of Reddit’s open platform – impacting its advertising revenue growth.

Our interactive dashboard on Estimating Reddit’s Valuation analyzes Reddit’s key revenue and valuation drivers and compares them with its social media peers. We also examine a scenario where Reddit is able to match Pinterest’s average revenue per user, and how much its valuation could increase were that to occur.

In the last few months, Reddit’s user base has increased by nearly 32% (from 250 million to 330 million), while we expect much slower growth in users of other social media players.

However, the company’s revenues remain lower than most of its peers

With controversial content on its platform, many brands do not want to associate themselves with Reddit, despite a strong user base and high engagement levels. The company is now working on expanding its advertiser base by introducing new kinds of ads on its platform.  In a scenario where Reddit can generate around $2.40 per user (similar to Pinterest) compared to our current estimate of $0.40 per user, its valuation would increase exponentially. For this to happen, however, the company would likely have to clean up a lot of the content on its platform, which could reduce user growth and engagement. You can analyze this scenario here.

At its latest funding round, Reddit was reportedly valued at $1.8 billion, which implies a revenue multiple of 18x, based on a revenue estimate of $100 million. Other growing players such as Pinterest and Quora command revenue multiples of more than 25x, while an established player such as Twitter has a multiple of 12x.

Reddit’s valuation could increase massively, to as much as $15 billion in a scenario where it commands a revenue multiple of 25x and is able to generate annual revenues of $600 million (matching Pinterest’s average revenue per user and approaching its revenue multiple). However, we view that as highly unlikely in the near term, given the company’s aforementioned monetization issues and the various controversies and scandals it has faced over the years. Still, with a growing and engaged user base, there is certainly scope for substantial valuation growth.

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