Fidelity has cut Reddit valuation by 41% since 2021 investment | Hacker News Reader

Fidelity has cut Reddit valuation by 41% since 2021 investment

techcrunch.com

154 pointsjmsflknr85 comments

It feels like the more a company tries to pump value for shareholders, the less value is left over for users. Reddit has been very obviously working towards an IPO for some time and you can see it in the worsening user experience and onerous (prudish) moderation policies pandering to advertisers.

Shareholders are parasites on a company as their interests are one dimensional in favor of themselves. Gotta get that big IPO payout though.

They keep changing to make the site worse and worse for users.

On my iPhone, Reddit.com shows 5 articles when I’m logged in. Old.Reddit.com shows 15. The recently killed compact mode showed even more.

To view the same articles I would spend more time scrolling, so I guess I like that. But instead I spend less time on the site.

Compact mode still exists! Add the suffix `/.i` to any reddit URL and you'll get it back. They removed i.reddit.com and the `/i` suffix but I think the PMs forget to mention `/.i` in their "kill compact reddit" JIRA ticket.

People really are bizarre addicts. Companies will literally blatantly say they hate you and your moderately healthy use patterns; and people will desperately try to use the site until they eventually get around to killing the service

I've been trying to cut Reddit usage since I first heard about their impending IPO a few months ago, actually. When they killed i.reddit.com and the /i suffix, it tripped my alarm bells and I realized I shouldn't keep relying on Reddit for much.

I've successfully eliminated it from most of my recreational time, but Reddit posts are still often useful when I'm debugging an error or researching a purchase. When that happens, I'm glad I have the /.i suffix set up on my phone and old reddit redirect on my laptops. Quitting cold turkey is hard anyway, might as well use any hacks available that make the site easier to use while I cut down my use.

It took a long time, my account is 15 or 16 years old, but I've not visited the site in a couple of months now. Addict that I was, they managed to cure me with their latest changes, hallelujah.

The thing I hate is that they constantly push you to use the app. Stop making me use the app! I like the web browser. It works better, it's faster and it's less for me to learn another app.

I actually use reddit less because of this

What are shareholders supposed to care about? They give a company capital in hopes of getting more back in the future. Are shareholders meant to be philanthropists?

Shareholders are parasite in the first place. They can't be philanthropists. It's like saying "generous thieves". Doesn't make sense.

Simple fix --- keep your company private. That does require you to actually be profitable though.

They aren't always meant to exist. Why must everything be about the extraction if capital?

Because that's what the owners of said capital want.

Aka capitalists

It gets created, not extracted

In the case of Reddit, it's definitely extracted. Reddit is just a particularly poorly-run and particularly large forum. Reddit (and Digg before it) did not create new forms of communication, merely placed them under the control of capital.

It gets created, then extracted.

Do shareholders give capital? Maybe if you’re on the board or something? But even then it really feels like shares are the dissemination of capital, where if your company does well then the share goes up. Like me buying 5 shares of Apple isn’t really giving Apple any capital as the price is based on market cap. Happy to learn if I’m wrong though.

If it were not for the prospect of selling their shares to you (or back to Apple later), no one would have bought those shares in the first place. When a company is going through tough times, it can raise capital by issuing more shares. Apple is so successful at the moment that it does not need to do new public offerings, but it could choose to (like Nvidia recently -- not because of tough times, but because why not take free money when it's being shoveled at you).

Also, price is not based on market cap... market cap is based on share price and count. But the larger the market cap, the more money can be raised by selling shares without diluting existing shareholders too much.

Market capitalization is a function of share price, specifically share price times number of shares.

You buying 5 shares shifts the demand curve for the share to the right, resulting in an increase in the price. (absent a simultaneous proportional increase in the supply of shares).

While it may not feel like your purchase of 5 shares gave Apple capital, your demand was surely part of the aggregate demand and supply that determines Apple’s share price at a certain point in time, and hence informs Apple’s market cap.

None of what you just described gives Apple capital unless Apple decides to issue more shares. Given that Apple has been retiring shares, not issuing them, your purchase of Apple stock and subsequent shift of the demand curve actually removes more capital from Apple than if you did not purchase any stock.

We're talking about Reddit, not Apple. Apple has enough cash flow to fund most investments and enough stability to get a decent rate on the bonds it issues. They do not need to sell more shares for capital, although they do create shares for RSUs. Using RSUs (which are later bought back) as a part of compensation is a kind of revolving line of credit, which conveniently scales with the success of the business. That is, when the business is going through tough times and stock price falls, the stock based compensation expenses also fall.

This is a very naive, simplified, and wrong take on a generally well accepted concept.

Point 1: increased demand for stocks will increase the price of it and thus the market cap. Point 2: the higher the market cap of a company the more capital it has available.

I'm saying point 2 is only true if the company wants to issue shares (unless you are talking about second-order effects like cheaper bond rates). Apple is actively repurchasing shares, so they don't have more capital because the price went up.

Yes, it theoretically means they could raise more money by issuing shares, but that's not happening.

Is it more capital if they are using RSUs in compensation?

So, it's depends how they do that. In 2022, Apple seemed to buy all the Apple stock they used for RSUs in the open market. So, absolutely not in that case.

But they don't have to do that. They could issue the shares for RSUs. If they issue new shares (either to sell to the market or to use for RSUs) then the market cap directly influences how much they can generate in work or cash from such a transaction.

When talking about pre-IPO companies, yes, shareholders are those that have given money (or in kind) to the company for their shares.

No but usually these things can align quite well. Build a user friendly website and usage will go up. It seemed like reddit worked more on getting usage down by restricting a lot of usage to their app. I don't think that's in the interest of shareholders.

The worst thing about Reddit, IMO, besides the UI garbage, is that they condone warfare between communities by allowing moderators to ban people merely for being subbed to another community, and for reasons as simple as the other community being the wrong politics and no history of raids.

That said, I actually think Fidelity's valuation is a bit harsh. Reddit's true utility today is in being a source of actual opinions and not corporate blogvomit. When I do searches today, I frequently use site:reddit.com, and I know many here on HN do at the very least. Reddit is, for better or worse, a centralized version of what the web used to be inside the web itself. For that reason alone, I think there's reason to believe that Reddit is not going anywhere, and that it still has opportunities to correct course. As far as I know, there are no serious competitors yet.

>is that they condone warfare between communities by allowing moderators to ban people merely for being subbed to another community, and for reasons as simple as the other community being the wrong politics and no history of raids.

Either these are communities or they aren't. If they are communities, they have the right to ban whomever they please for nearly any reason. The right to decide who is and who is not a member is about the most important right a community has. My buddies and I have no obligation to let you hang out with us if we don't like your politics.

I certainly don't care for the way Reddit runs its "communities". They are, in practice, run by a variety of petty tyrants. The admins ban anything that might scare off the advertisers and the moderators rule by edict. The solution to that is not, in my opinion, to increase centralized control even more.

It's not really a question of whether communities have a "right" so much as that I don't think it's something that Reddit should support, but they provide moderator tools to do this. Worse yet, they bring this problem upon themselves by making it ridiculously easy to setup dummy Reddit accounts and can be active in a very short period of time, which practically encourages ban evasion. Instead of allowing innocent users to face guilt by association, Reddit should add a lot more friction to creating new accounts and add read-only period.

> My buddies and I have no obligation to let you hang out with us if we don't like your politics.

There's nothing wrong with this in principal, except the default behavior for subreddits is to allow literally anyone to "join" in a single click. Those people aren't all your "buddies". A community can become private, but this also means not being visible to anyone except members. This creates a weird dichotomy where either a community is full-blown open and is encouraged to use other people's subscriptions against them, or to be invite only but few want to join because they can't see the activity of the site.

> I certainly don't care for the way Reddit runs its "communities". They are, in practice, run by a variety of petty tyrants.

That's exactly why the guilt-by-association approach frequently goes overboard.

> The solution to that is not, in my opinion, to increase centralized control even more.

Agreed. Some better approaches would be to allow a middle-ground for communities to be more exclusive and for sock puppet accounts to no longer be piss easy to create.

> As far as I know, there are no serious competitors yet.

Anyone reading this want to build one? :)

Reddit: how to be a dark web without being a dark web?

Paying back big loans when they come due is always painful but calling them parasitic would be incorrect. Fundamentally reddit like many other website business models was based upon borrowing from the future. That is infamously basically the digital start up business model: offer unsustainable goods to build a user base under the expectation that it will pay back later. Much goodwill was based upon the assumption that it will do so, goodwill which helped fuel the growth in the first place. With a structure like that there is hardly anywhere to go but down. Maybe it could establish its own market section when at a large enough scale but that is unlikely.

Calling it parasitic is to operate under naive assumptions that free lunch is somehow the natural state of being in a fundamentally entropic and uncaring universe. The enshitification is the result of a devil's contract as that which livestock effectively enter: to be fed crops, and protected in the now in exchange for later certain doom. There were always the "wild" alternatives of free software and DIY but they aren't popular at all in comparison.

Because to continue the metaphor, the wild can hardly feed itself. There is no salary paid for maintaining your own Mastodon or message board, hell it doesn't even pay for its own server bandwidth let alone salaries for the work involved. Traditional message boards are pretty much extinct, choked out by spammers and lack of interest.

Financial engineering as a discipline is insane. Literally the definition of insane: seriously mentally ill and unable to live in normal society [0] -- so detached from the "normal" reality most people live in, and taken hold like a schizophrenic about things that only exist in one's own head.

Shareholders are rent-seeking parasites. They have put down an initial investment to purchase some asset, and now consider themselves given the right to lord over those who labor for that asset, while providing little in value (no different than absentee/"hands-off" landlords).

It would be one thing to actually loan a set amount of money, with a set payback period that ends sometime in the future. It is another to declare oneself a relative God Emperor, and shackle others for entirely one's own benefit, in perpetuity.

To continue the metaphor, the wild can no longer feed itself, because of a set of people taken hold by delusions have irreparably destroyed the wild's ability to. No different than someone buying a cat, and keeping it locked up in a house all day. Yes, food and shelter is provided -- but a cat would be able to achieve those for itself, were it not for a chain of man-made events that landed it in such a predicament. The cat would've either not been born and never landed itself at the mercy of others, or would've been born in the wild, and lived without a sovereign ruling over it.

[0] https://www.oxfordlearnersdictionaries.com/us/definition/ame...

Do you have a better system in mind?

Outlaw modern-day corporate trafficking. You cannot buy pieces of a person; corporations are legally people; you should not be able to buy pieces of them.

Remove the corporate veil. All liability will rest upon a corporation's guardians. Bankruptcy, and civil and criminal suits, will personally affect the officers and shareholders of said corporation (and their assets). The same way, if your child goes out drinking and driving, the parents are now liable for any people slaughtered along the way; or if your dog goes out and mauls some child, it will be put down and you will face restitution for damages.

> Paying back big loans when they come due is always painful but calling them parasitic would be incorrect.

Investments are not loans. Loans entail finite returns from finite input. Investments entail infinite returns from finite input. Its that infinity that makes investor-ownership parasitic in a way that loans ain't.

Shareholders are either those who made the company or people that the founders sold the company or shares of the company to. They are funding the company, something a whole lot different than being a parasite. Nothing stops you from making a reddit without external funding.

Reddit is well into its second decade of existence, and already had at least one “exit” via Condé Nast. In what sense is it proper to continue to refer to it as a “startup”?

apparently startup means "not being public"

because "being public" is the real "cashing out" at which point they stop "starting up". They actually begin to "shut down"

I don't recall where I read it, but this process was described best as the transition from a "start up" to an "end up"

Guess Aldi is a startup then

I guess with that definition, Europe has a lot of very valuable start ups.

I feel like the definition of “startup” changed quite a bit, but not as much as the word “hacker”

> In what sense is it proper to continue to refer to it as a “startup”?

Does it have a "ticker" yet on NYSE/NASDAQ?

By that logic, the Mars candy corporation at over 110 years old in its n-generations long family ownership qualifies. Because when I think of startups I think of Snickers, etc.

So startup = private company?

The social media race to the bottom is in full swing, and nobody is going to finish it feeling happy. In the end it's going to be a sad story for users and shareholders alike. The fruit is rotting on the vine.

Reddit got terrible years ago, around the time of the redesign. This is just a market correction.

It was when they hired Ellen Pao for me

I'd be happy if most social media went the way of MySpace and Digg.

Digg was pretty nice before the redesign killed it

Users will end up being happier. They won't know it for a while but they will be. I don't know many people who have regretted leaving social media websites.

Sounds like quite something with a high risk of selection bias. You wouldn't expect to hear from them either way.

Personally I don't consider Reddit to be social media any more than I consider Hacker News to be.

Reddit has roughly the same business model as Twitter, Facebook, and TikTok. Each of those sites are structured differently and come with different bells and whistles, but essentially they all just ingest user content, inject ads and tracking, and shove it in your face. Isn't that social media?

HN, on the other hand, doesn't even have a business model of its own. It's a text-only discussion board running on a couple servers.

For me "social" suggests that people use it to "socialize". Keep contact with old friends, find new ones etc. Reddit or Hacker News don't fit into that category for me.

If we say that any website with user generated content is "social media", then half of the web is that and the term kind of loses meaning.

It’s definitely a lot more social media now than it was when it started or DiggV4 era.

Indeed. I would have had a much different opinion in 2013 (and to be fair, old.reddit plus uBlock gives you mostly the same experience), but Reddit as it exists now is definitely social media. (Note that most subreddit mods report that their traffic is ~80% New Reddit users.)

Does that statistic mean "new Reddit UI" users or "new accounts"?

I always thought the term "social news" covered it pretty well.

41%... since August 2021. Which is about par for everything in tech (or significantly better in some cases)

People are assuming this drop was caused by the API footshot, but I think it's the other way around.

You think a redesign years ago was caused by a drop in price today?

I think they're talking about the policy they announced yesterday that they'll close their API off to 3rd party developers unless they pay a fee in the millions.

The timing coincides awfully well with the Apollo developer's revolution about API pricing.

Link: https://old.reddit.com/r/apolloapp/comments/13ws4w3/had_a_ca...

My gut assumption just from the title was that the API changes are what triggered this valuation. The change is such a clearly bad move. I can only imagine the reaction will be when such a large percentage of users will wake up and suddenly be totally unable to access the site due to their reddit apps no longer being able to connect.

But if anyone actually read the article, the lower valuation was decided 34 days ago and published last weekend.

Right, since as I mentioned it was a gut reaction that I had previously. Reddit making such a boneheaded move does make slightly more sense when you learn that it was probably spurred on by dire news like this, but it's still a boneheaded move.

Sure, I know logically it was already long decided, but I wonder about the timing of there announcement.

Seems like TechCrunch decided to time the article, not Fidelity.

Reddit was valued at $10 billion when the social media giant attracted funds in August 2021. Fidelity — which has marked down its stakes in many startups including Stripe and Reddit in recent quarters — also slashed the value of its Twitter stake, it disclosed in the filing, valuing Elon Musk’s firm at about $15 billion.

wow...elon down $30 billion . lol no wonder he wanted to bail on the deal

you're being down-voted since I guess you hit a chord with some people.

twitter is absolutely a dumpster fire and at this point they should be happy if they survive. forget about the valuation and try to help it survive.

More likely because he's beating a dead horse and acting surprised. Everyone knew that Musk overpaid, that's why the deal was approved despite the people running Twitter not wanting to sell. Musk himself has said numerous times that he overpaid and slashed the valuation with 50% months ago.

Everyone? I beg to differ. Tons of people love Musk no matter what he does.

Does that mean Reddit's valuation for Fidelity is 6B? (given they evaluated it at 10b in their round).

41% cut would make it worth 5.9B

What’s 100 000 000 between friends?

Reddit is both fascinating and infuriating. It's got more good content leads than any other social media site, but most sub-reddits seem to be inhabited by bored, angry 15 year old males.

I'm waiting for something similar, but more mature, to emerge. Won't that be nice!

In fairness, all valuations were massively overinflated by zero-ish interest rates. Now rates have gone up by about 8x cutting 41% from speculative valuations is pretty good...

I do wonder how much longer Reddit can continue. Based on the numbers I can find, it doesn't look like they're making very much in the grand scheme of things. The best estimate I found was $350M in 2021.

Their operational costs and overhead must be very high given the amount of traffic they get (~#18-20 worldwide according to Similarweb) and the amount of data they have to quickly serve. I can't imagine you are anywhere near break even with the infrastructure and operations they need plus company overhead.

If true, the API changes definitely seem like a way to try to generate a new income stream that doesn't "take away" something from the base platform that users used to have for free (like Twitter Blue).

Seems like a pretty safe play from an investor point of view until you realize that the third-party developers using the API in the first place to build alternative clients are not multi-million dollar companies that can afford the API rates. I don't know who out there is using Reddit data that could pay the proposed rates and still be profitable. There just can't be that many of them for this play to make sense.

It's easy to see what will happen. Taking away a method to access your platform that your users are comfortable with (i.e., BaconReader, Reddit is Fun, Apollo, etc) will lead to a good number of those users abandoning the platform, others moving to the official app begrudgingly, and the net effect will be that all of the users are unhappy and Reddit will likely not be earning enough from their API to make it all worth it.

And through it all their official app will probably stay untouched or barely updated.

Or maybe they'll buy the most popular cross platform client and retool it to be official.

I honestly don't know why they never tried to monetize their subreddits. Imagine a monthly fee for:

  - Additional moderation tools
  - Additional design tools (i.e., force old design forever)
  - Slotted template layout for more design flexibility
  - More moderator slots, more flair, etc
  - Built-in highlighted community member feed at the top of the subreddit -- who in the community is live right now on YouTube, Twitch or Reddit, etc. Imagine the Final Fantasy 7 Remake subreddit having some of the mod team do a live head-to-head speedrun race streamed live in the subreddit.
  - Custom emotes like BTTV/7TV on Twitch, etc).
  - Dedicated account manager to help handle brigading when the topic of the subreddit has a bad day in the news cycle and 4chan is bored and starts spamming the sub.

The larger communities would definitely buy into that.

Some of these features could also be added to a monthly user subscription too. For example, you could get a handful of awards you can give out to posts as part of your sub (like Discord Nitro gives 2 server boosts).

Official subreddits could also be a thing -- imagine Xbox paying a few grand to make it the official subreddit and gain direct access to Reddit Admins, better tools for managing customer complaints and support tickets directly from the platform, lots of user metrics and data, etc.

> Or maybe they'll buy the most popular cross platform client and retool it to be official.

They did that already. AlienBlue was then the Reddit iOS client that Appllo is now. Reddit bought it, gutted everything that made it good, then released it as the official iOS app.

Yeah, I call BS that people won't pay for anything on the internet. They'll complain if you charge $7 a month, yes, but if you charge $25 a month, then you will have a smaller sunset of customers who are less likely to whine like those who threw a hissy fit over blue checkmarks.

It used to be a good website, but due to moderation, forcing users to use the app, and just the corny user base I find it unbearable sometimes.

however, in the age of LLMs this a greater database to train on

I'm surprised it has any value left.

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