Comment by SilverBirch | Hacker News Reader

Comment by SilverBirch | Hacker News Reader

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On the 15th of December 2021 they filed with the SEC in the build up to IPOing, at that time the rumours were they'd be looking for a $15Bn valuation. At that time, SNAP was worth about 60Bn, TWTR 40Bn (a notoriously shitty stock), Facebook 900Bn. SNAP is down about 60% since then, Meta is down 75%, and TWTR is out of whack because of the acquisition. So basically they missed their chance. They could IPO today, but they'd be selling reddit very cheap, and they'd also be putting it under huge pressure since every other social media company is in the process of doing a huge round of layoffs so reddit would immediately need to start looking at their cost structure.

There's a couple reasons why it's so bad. Firstly, everyone's expecting a recession, so advertising budgets are getting cut and that's going to tank Reddit's revenue stream (which is already weak) and secondly, a high interest rate environment means that all that future growth has to be discounted back to a much lower net present value. It's also just in a bad place narratively, none of the small scale social media sites are doing well revenue wise, and Tiktok is eating their lunches anyway.

"a high interest rate environment means that all that future growth has to be discounted back to a much lower net present value."

Could someone explain this to me like I'm a 5 year old (who understands what a discount rate and present value are, but not why that collection of words makes things harder for reddit)?

Reddit is unprofitable. They're telling investors: give us a dollar today and we'll give you ten dollars in as many years. (Hopefully.)

If interest rates are zero, that's a good deal. If rates are 25%, that $1 will almost get there on its own in a Treasury. A good deal in a low-rate environment is a bad one when rates, the price of money, are high.

Picking this one at random to reply to, but this goes to everyone: Thanks for all the replies.

I'm still confused. I think of inflation as a thing that devalues a present day $1. But as it applies to companies with revenue it seems like a rising tide that would lift all boats, and something that kind of divides out of the analysis of the future revenue stream of a company.

e.g. If Reddit's daily revenue is $x and inflation is 10%, then its daily revenue in a year is (approximately, caveats about their ability to raise prices, etc.) $1.1x. So Reddit can say "give us a dollar today and we'll give you $10 multiplied by ten years of 10% inflation in ten years". Is that mental model wrong?

I'm also confused why this problem particularly applies to Reddit, which seemed to the the implication of the comment I originally responded to. Is that just because Reddit makes a loss, and this challenge applies to all such companies?

I never understood why company like Reddit, which no users give a fuck if it is 50Billion or 250Billion valuations. It is kinda like Craigslist, it provides a benefit to the society as public forum for information sharing. The cost to run it shouldn't be too high. Just keep it running for the purpose of that. Don't get into those MBA talk about making it profitable. There are business that can be profitable. Something like a public forum, should be like digital public utility, kind alike park and public library.

It goes to stock pricing theory - you can basically say the total value of a company (all the shares added up) is the value of all the future profits, discounted back to todays dollars. If interest rates go up, we apply a bigger discount to reddit's future profits, so the value of reddit goes down. Since reddit is a growthy tech stock what we're kind of saying is reddit's biggest profits are a long way off so we're going to discount them a lot when interest rates are high, making reddit highly sensitive to interest rates.

If you understand what a discount rate is, you understand why higher interest rates decrease value. It's just math: the present value of x cash n years in the future at i discount rate is:

x / ((1+i)^n)

Discount rates are affected by interest rates, because interest rates represent what else you could do with your capital (you can always invest in a Treasury instead of a tech stock).

So if i goes up, x goes down.

High interest rates mean more low-risk money in your pocket. Reddit needs to increase their growth rate to make sure the investment has a higher yield than interest+risk to make it valuable. Either you reduce present value or increase expected growth (which is significantly harder for tech companies).

Think of it as the opportunity cost. If interest rates are high, I can go out and buy a us gov't bond at x% risk free. This makes other investments that maybe looked attractive at lower interest rates less attractive now, and this is reflected in the lower npv value.

The safest investments are now giving higher interest rates than they did a year ago. So the expected future growth of reddit looks less appealing in comparison even if the company's prospects are unchanged.

This assumes typical tech operations (borrow until profitable).

One of the variables of a NPV calculation is the discount rate that corresponds to the risk profile of the investment being assessed. The lower bound on that discount is the treasury rate as that is what a USD investor deems "risk free". Therefore after a treasury rate hike, the discount rate for any given investment needs to be adjusted up and that lowers the NPV calculation result.

TL;DR the higher returns from US bonds make other investments comparably less attractive because you can get better yields from the USD bonds.

That is too bad. I've noticed that Reddit has been working on changing its underlying tech stuff and they are likely doing some cool stuff that the public isn't aware of

This is a pretty vague addition to the conversation. What cool stuff are they doing?

I see them:

* Purposely crippling the web experience on desktop or mobile web

* Implementing a SPA badly. Clicking on some posts loads entirely different posts. Comments don't work sometimes.

* Purposely crippling the logged out experience

The smartest thing they could do is put old.Reddit.com back in front and fire 60% if the people churning away doing whatever.

One of Reddit's largest subs (BPT) actually requires the user to submit a picture of their forearm skin color[1] to be granted access to the full sub. If you are the wrong skin color they require a written mea culpa disowning the sins of others who may have had a similar amount of skin pigment as you. And yes, in 2022 this is still the policy.

Reddit being a home for racists like this would probably generate a ton of scrutiny if they go public.

[1] https://www.nytimes.com/2019/10/08/us/reddit-race-black-peop...

Reddit is home to hundreds if not more of porn subreddits, including some that the majority of people would consider vile/controversial (rape, race play, etc.). While Reddit sometimes goes on a subreddit-banning spree, they often don't touch the porn ones as they generate a lot of traffic and I guess revenue (via awards). They are also indirectly used for escort services.

I wonder if they'll be gone if they IPO.

Not sure this is still true... what do you mean by "access to the full sub"? On https://www.reddit.com/r/BlackPeopleTwitter/ I cannot see any restriction. And the rules in the sidebar state 'BPT is an inclusive space for POC and allies alike.'

your post or comments will likely be auto-flagged and deleted by a moderation bot if you haven't been verified, that's the standard enforcement mechanism there that subreddits use for more draconian verification/moderation.

one of the more painful experiences on reddit is spending 30 minutes writing up a post for a subreddit only to hit submit then get your content immediately deleted by a moderation bot ran by the sub's mods for breaking some rule you didn't realize existed or for having previously posted to some other subreddit that the mods disapprove of, even if you were posting a critical comment or disavowing the beliefs in that other subreddit.

/r/conservative does the exact same thing, why the handwringing about that sub in particular? What sub-text could possibly have caused you to select that sub as your example?

Reddit is a platform for communities. Some communities, across all spectrums of topics, find reasons to create a somewhat exclusive environment. They are not required to make space for all views, and that lack of forced-openness is not the same as censorship.

    /r/conservative does the exact same thing, why the handwringing about that sub in particular?

No they don't. I just tested it and there is no skin color requirement to post in /r/conservative. Why would you try and draw that comparison when it obviously doesn't exist? Can't we just agree it's racist and Reddit allowing that is a bad look, to say the least?

Because that was the sub where I had that experience? I wouldn't disagree with you in the slightest if you wanted to pick any other sub including conservative and said they were just as shitty or dumb if that's how they work.

>Reddit is a platform for communities. Some communities, across all spectrums of topics, find reasons to create a somewhat exclusive environment.

I feel it's important to note that a similar restriction focused on any other race, even other minority races, would probably be banned within a week of creation.

there is a disturbing pattern the administrators have of proclaiming their love for freedom of speech in a post, receiving huge backlash, then going on a banhammer rampage. it's happened at least four times /in my memory/, and probably more throughout the site's entire history.

No, they do not. Maybe you just posted something inflammatory?

Yes, it is still true and has been for years. I encourage you to try and post in one of their threads flagged "Country Club" and see for yourself. They don't hide the requirement. It's not a secret.

ask yourself why they implemented this?

Racist policies always have an origin story. Ask anybody who supports racist policies like this and they'll give you a reason, not sure I understand the goal of that though.

https://pluralist.com/blackpeopletwitter-reddit-white/

> a high interest rate environment means that all that future growth has to be discounted back to a much lower net present value.

But inflation is still higher than interest rates.

Rates will continue to rise and you can lock in high rates.

My college was paid for by 12% US Savings Bonds that my parents bought when I was a small child. That late 70s/early 80s inflation went away in the meantime.

What do you mean by "a high interest rate environment means that all that future growth has to be discounted back to a much lower net present value"?

You can think of the value of a stock being the value of all the future profits. So if I know that a company will make $100m in it's lifetime, I can say that company should be worth $100m. But we have to discount that - because money in the future is generally worth less than money today. If I give you a dollar today, you have a dollar, you put it in the bank and collect interest and next year you'll have $1.02 (2% interest). If I give you a dollar next year, you have a dollar. So the dollar today is clearly more valuable than the dollar next year. So what we have to do is look at when the company will make that money, and discount what that money in the future back to what it's value is now. "This is the net present value of future cash flows"[1]. So as interest rates go up, we apply bigger discounts, so companies whose profits won't come for a long time get heavily penalized by this in their valuation.

[1]https://www.investopedia.com/terms/n/npv.asp

Thanks for the explanation.

I would like to thank you for summary here. This makes it clear.

That's not the source of the problem, just a symptom. What caused the financial problems for social media was the censorship, blatant propaganda and use of addiction based behavior modification to subjugate the population; AKA population control.

Reddit might actually be one of the worst offenders, but because they aren't public, and have a smaller user base, they went unscrutinized. I highly recommend everyone watch the documovie the Social Dilemma.

TLDR; Social media is military grade psychological weaponry aimed at the most vulnerable amongst us.

> Social media is military grade psychological weaponry

That would probably be good for the stock value, wouldn't it?

Not if your users discover the ruse, and mass quit using social media, or worse start abusing it themselves. Reddit had a large drop off in users after the Black day, however, the latter is in fact is definitely going on as well.

The genie is out of the bottle on this one, and social hackers planet wide are now playing the game.

It's not very potent weaponry if your users discover the ruse...

They make every effort too silence people who cut against the grain on this issue: browbeating, gaslighting, censorship, and eventually the ban hammer. Of course, this only slows the fight against these dystopian oligarchs. My hope is that the tipping point will be reached before they have silence too many of us.

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