Benzinga - by Chris Katje, Benzinga Staff Writer.
Shares of social media company Reddit Inc (NYSE:RDDT) rocketed higher in their debut Thursday.
As investors and users debate the valuation of the company, one key concern remains: the value of data insights and their impact on those invested in the company’s future.
What Happened: Founded by Alexis Ohanian, Steve Huffman and Aaron Swartz in 2005, Reddit now has over 850 million active users.
The monetization of the company's user base is a key for growth, as Reddit now enters the world of being a public company that must show growth or a value proposition to investors.
One of the ways Reddit plans to generate revenue is by licensing out its data to large language models. The company signed a $60 million annual deal with Alphabet Inc (NASDAQ:GOOG)(NASDAQ:GOOGL) earlier this year.
The partnership will see Alphabet's Google get access to Reddit's Data API
"Over the years, we've seen that people increasingly use Google to search for helpful content on Reddit to find product recommendations, travel advice and much more. We know people find this information useful, so we're developing ways to make it even easier to access across Google products," Google said in a post.
Google said that Reddit has "an incredible breadth of authentic, human conversations and experiences, and we're excited to partner to make it even easier for people to benefit from that useful information."
The agreement with Google may lead to multiple licensing deals for its content, contributing to analysts’ projections of revenue growth for Reddit.
Wedbush analyst Daniel Ives said Reddit could hit $1 billion in annual revenue next year.
Related Link: ‘Level The Playing Field’: Reddit CEO Reveals On IPO Day He’s A Member Of WallStreetBets
Why It's Important: If data is king, Reddit could see increased monetization opportunities. The opportunities come with a potential cost as Reddit users could now see their comments, posts and conversations more frequently used by search engines and AI chatbots.
One key question is whether Reddit users will remain on the platform and engage as actively if they’re aware that their content could be monetized by Reddit without their receiving any compensation.
Ives said the value of data years ago is "not what it is today" when discussing the Reddit IPO. The analyst said the social media company has more opportunities for data monetization now than it did years ago.
The deal with Google prompted interest from the Federal Trade Commission (FTC), according to a report from Reuters.
Users of stock trading platform Robinhood previously criticized the company over its monetization of content. The company generates revenue from payment for order flow (PFOF), which involves selling user trading activity to wholesalers.
Other social media platforms sell data to advertisers, which leads to targeted advertising.
The era of selling data is here and likely not going away. The question is if Reddit users will be okay with this if it means more growth for the platform.
RDDT Price Action: Reddit shares are down 4% to $48.53 on Friday. The company priced its IPO at $34 and saw shares open at $47 on Thursday. Shares closed their first public day up 48%.
Read Next: Humble Beginnings: Like NVIDIA, Reddit Was Founded Inside A Restaurant
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