Niket Nishant
(Reuters) – Reddit will have to spend heavily on content moderation as it prepares for greater scrutiny as a public company, analysts say, threatening its longstanding policy of relying solely on volunteers for the task of oversight.
The newly listed company warned in its initial public offering (IPO) documents that it depends on moderators to “act in good faith” and risks being perceived as condoning “offensive, inappropriate, hostile or otherwise objectionable content” due to its approach. for moderation.
But relying on volunteers is not sustainable given the regulatory scrutiny the company will now face, said Julian Klimochko, CEO of alternative investment solutions company Accelerate Financial Technologies.
“It’s like relying on unpaid labor when the company’s revenue is almost a billion dollars,” he added. Reddit’s 2023 revenue was $804 million, according to previous reporting.
The company will have to make significant investments in trust and security, which could lead to a “dramatic” increase in costs, he said.
Eliminating offensive content is critical for social media platforms, which have seen an exodus of advertisers seeking to prevent ads from appearing next to inappropriate material.
Many advertisers are wary of Elon Musk’s X after he relaxed his moderation policies.
Josh White, a former SEC economist and associate professor of finance at Vanderbilt University, also said relying on unpaid volunteers is Reddit’s biggest risk.
According to him, the company will have to increase spending to combat disinformation, especially as the United States prepares for presidential elections later this year.
Reddit did not immediately respond to a Reuters request for comment.
STAR DEBUT
Reddit shares surged 48% in its debut on the New York Stock Exchange, receiving a warm welcome from investors despite the company not making an annual profit since its launch in 2005. They fell almost 3% on Friday.
Analysts said stock trading will be closely watched over the next few weeks to gain more insight into investor interest in new share issues after a long market freeze.
“Reddit’s successful IPO represents a return to pre-pandemic days, when investors were happy to snap up shares of unprofitable companies if they offered a compelling story,” said Dan Coatsworth, investment analyst at AJ Bell.
Popular investor Cathie Wood’s ARK Invest also bought nearly 10,000 shares of the company on Thursday, according to an email from the asset manager.