Reddit is the fifth most visited website in the US, and the ninth worldwide. Yet it makes almost no profit. Why?
Reddit has been trying to become profitable for years and stumbled at every step. They have been fighting their users year after year, and their stock is down over 50% from just earlier this year shedding over $20 billion in market cap. It seems the website is incapable of making money despite having half a billion users.
But that might have changed. Something has changed very recently. They might finally be making money… But at what cost?
Let’s start with something fundamental: Reddit is very different from the rest. Instead of following pages or people, Reddit uses communities, or “subreddits”. Communities around movies, finance.
They can be anything…. yes, anything. The posts from your subreddits are what you see in your feed.
And this brings us to what’s really interesting about Reddit. Tension For one, Reddit doesn’t use algorithms in the same way as YouTube, TikTok or X. These platforms use a complicated system with an extensive amount of your user behaviour to create a “for you” feed.
Reddit’s is much simpler, and some would argue: much better. In fact, Reddit is open source, we can actually see how it works. It’s actually pretty simple.
Posts on Reddit can be upvoted, and this drives their ranking. But so does time. Reddit will push the newer, rising content more and weigh early interaction heavily.
“The first 10 upvotes have the same weight as the next 100 upvotes which have the same weight as the next 1000” and so on. This means what you see is largely driven by what people are actually upvoting and engaging with, instead of what the mysterious black box decides you need to see, whether you like it or not. Reddit really feels like the “heart of the internet”, and unlike any other platform.
Subreddits are run by “moderators”, who are volunteers in the community. Because of the nature of Subreddits, it’s easy to find an extremely specific community to what you love, or answers to very technical problems. That’s why most people who are troubleshooting will search the problem on Google, then add “reddit” at the end.
You can find specific posts with only a few upvotes from a decade ago which are still helpful. Something you can’t exactly do with Facebook or other platforms This is what makes Reddit different, and loved by users. You feel like you’re part of a real community.
Your feed feels like it’s just what people are talking about instead of what the algorithm gods decided you should see. In 2021, Reddit had 54 million daily active users, and by late 2024, that climbed to 97 million with over half a billion monthly active users. With this many users and being in the top 10 most used websites, you’d think it’d be a goldmine of profit.
Yet, it’s the exact opposite. What made Reddit so popular and unique, is what keeps it away from profits. Reddit has had a slow, gradual lifespan, but in the past couple years, it began to accelerate, and fast.
Outside of TikTok, it’s the fastest growing Social media platform in the past few years. So, with this momentum, Reddit decided to do something it’s never done. In March 2024, Reddit, after 19 years, launched it’s initial public offering.
The IPO priced shares at $34 each, and leapt 70% to a high of $57. 8 that day. Reddit raised $750 million and reached a market cap of $9.
5 billion. Impressive. Things were looking good.
But despite the massive round of funding, there was still that big, big problem: How were they going to make money? Tension Reddit at the time had a few ways of monetizing. First there’s Reddit premium.
Access to custom avatars and other perks for $5. 99 a month. Then there’s rewards.
You could spend money on certain trophies to give a user’s post, almost like a “super upvote”. There’s a bunch of funny awards, but some like Gold and Platinum give that user Reddit Premium. The biggest of course, is advertising.
The staple of most social medias but there’s a few problems. Let’s take a look at Reddit’s metrics real quick. Reddit’s average visit duration is 12 minutes.
Not bad, but that puts it at 10th behind the other Social Media giants. Out of the top 13 it also had the lowest “pages per visit” metric at only 2. 8, and the second highest bounce rate, at 63%.
It is one of the biggest websites on earth, but it’s not as good as its competitors at keeping people there. But it gets worse. In “Average time per month spent”, Reddit didn’t even make the top 12.
The problem is starting to become clear. In 2022 Reddit lost $158 million, and then another $90 million in 2023. But it’s not just users, but the very design of Reddit that’s a problem.
Reddit users are a very different category compared to other platforms. By that I mean, they don’t generate much money. In 2022 the Average revenue per user on Facebook was $43.
For Instagram it was $35 and it was just $10 for Twitter. For Reddit, it was just $1. 19.
Despite being one of the most visited sites on the internet, Reddit’s ability to turn users into revenue is abysmal by comparison. So, why? Reddit has never been great for advertising, by design.
Instead of a public profile like on Instagram or X, most of Reddit is totally anonymous. You can be anonymous on these other platforms, but most people aren’t. On Reddit, most people are.
This makes advertising much, much harder. But that’s not all. Since Reddit is very different, so is the culture of the platform.
On Instagram, sponsored posts and ads are about half the website. Not Reddit. Most users are very, very sceptical and distrusting of ads and marketing.
One marketing guide explains that “Reddit is a deeply opinionated, self-moderated platform where traditional marketing tactics go straight to the roasting pan. ” “Redditors can smell corporate fluff a mile away. If your ad comes off like a press release, be prepared for downvotes.
” Advertisers essentially have to play a totally different game and earn users respect and trust. Some can make it work and get great results, since Reddit fans are extremely dedicated and loyal. But it’s much, much harder to do than other platforms.
You have to avoid being overly corporate, but not disguise your ad and have users call you out as “hidden advertising”. This explains why the ARPU is so, so low. But there’s another problem.
A huge portion of subreddits are “not safe for work”, which is a term for what I’ll just call “explicit content”. Out of the largest subreddits, 22% of them are NSFW. Why is this a problem?
Well, advertisers hate this content. They don’t want their products seen anywhere near this content, because customers begin to subconsciously link the two. That’s the sentiment of advertisers in general.
It’s why YouTube, Instagram and Facebook have been so strict about this: to keep advertisers happy. Even with these problems Reddit’s been able to make some money, but not nearly as much. Reddit wanted to change that.
So its founder: Steve Huffman, began to dial things up to 11. At first, things seemed to go well. They partnered with Google to provide a huge amount of training data for Google AI, which would bring in $60 million a year for Reddit.
The partnership would also give Reddit access to Vertex AI, Google’s AI-powered service to help companies improve their search results. Reddit’s search function was notoriously bad, so this was great! They also did the same with OpenAI, which pushed up the share price 11% that day.
But what came next didn’t go over so well. In order to make these deals, Reddit made a huge change: API pricing. Specifically $0.
24 per 1000 API calls. That’s a lot of technical talk, so why did this matter? Well a lot of people weren’t a big fan of Reddit’s UI, and used third party platforms to use Reddit, like Apollo.
But with this change, third party APIs would become impossible. Popular third parties have to pay millions to Reddit just to operate, and in the case of Apollo, $20 million a year. On average that would be $2.
5 per Apollo user, which at the time was much, much higher than what each user generated for Reddit, let alone Apollo. “I don’t see how this pricing is anything based in reality or remotely reasonable” said the developer. Apollo’s developer announced the platform had to shut down.
Reddit users were not happy. Remember how all the subreddits are run by volunteer moderators. Well, if you do something users don’t like, it can create problems.
Big problems. In protest, moderators initiated a blackout. Over 7000 of the largest subreddits went private or NSFW.
Mods locked things down and changed the icons to a black photo. This went on for weeks. Reddit traffic began to drop, which meant fewer ad impressions, and less money.
It was a PR nightmare. A leaked memo from Huffman revealed that he told employees the drama would “pass”, which naturally fuelled the fire even more. Unfortunately, it doesn’t have a happy ending.
Reddit forced out many of these protesting moderators, re-opened subreddits. Now as a public company, it couldn’t make these same mistakes again. In late 2024, Reddit introduced changes that prevented mods from changing subreddits to private or NSFW.
The API prices weren’t changed, and soon Reddit began to record profits for the first time in history. In the third quarter of 2024, Reddit reported income of $29. 9 million, then $71 million the next quarter.
2024 as a whole was still a loss, of about $500 million but things continued getting better. In Q1 of 2025 they made $26. 2 million.
Advertising revenue was going up, by 61% from 2024 to 2025. It seemed Reddit finally figured out how to make money… but, there’s something else going on. Despite recording profits, Reddit’s share price fell.
Why? Reddit daily active user growth has been below expectations. Almost 2 million below.
The platform was still growing but growth was slowing fast. After this announcement, the share price fell 13%. It’s not huge, but it shows us something interesting.
Reddit is caught between two incompatible audiences: its users and its shareholders. For nearly two decades, Reddit ran on a fragile system of volunteer labour, niche communities, and a deep-rooted distrust of anything that felt corporate. What makes it so appealing is unfortunately what hurts monetization.
Reddit was never designed to be a business. But now it has to be. Reddit is changing.
To make money it had to crack down on its own users, the most dedicated volunteers at that. It had to change what made it so unique. It’s profitable now, but it’s annoyed everyone in the process.
But sometimes that’s the cost of going public. You need to answer to growth and shareholders, but no longer the users. Alright, real talk: since 2017 we’ve dropped over 1,050 videos and racked up 156 million views.
Yet somehow, we still haven't reached 1 million subscribers! That’s even worse than Reddit’s conversion rate. If you've been watching without subscribing all this time, consider hitting that subscribe button so that we can finally make 1 million a reality, but until then, I'm Hari and I'll see you guys on the next one.
