In a nutshell: Reddit is preparing for its upcoming IPO, aiming to become a publicly traded company on the New York Stock Exchange under the symbol “RDDT.” In anticipation of this, the company has announced a new licensing agreement to sell user generated content for the purpose of training AI models. Google has been identified as the partner in this arrangement and the FTC would like to have a closer look.
Reddit is going public in the coming months, but before it hits the NYSE, their newly signed licensing deal with Google has attracted the scrutiny of the U.S. competition regulator, the Federal Trade Commission (FTC).
Following an update to their IPO filing, Reddit disclosed that it received a letter from the FTC outlining the agency’s plan to conduct a non-public inquiry into Reddit’s practices concerning the sale, licensing, or sharing of user-generated content.
In their response, Reddit stated, “We are not surprised that the FTC has expressed interest in this area,” acknowledging that content deals for AI training are a relatively new thing. They also mentioned that they do not believe they “have engaged in any unfair or deceptive trade practices.” But that will be up to the FTC to decide.
The FTC has so far refused to comment on the news.
Reddit is seeking for a valuation of roughly $6.5 billion, looking to sell roughly 22 million shares at an expected value of between $31 to $34. This latest update on the FTC inquiry is valuable information for anyone looking to invest at the time of the IPO.
Reddit cautions (as they are likely legally obligated to do so) that regulatory investigations can be protracted and unpredictable, posing a risk of significant additional costs or reputational damage depending on the FTC’s findings or disclosures.
Despite the FTC’s interest, the content deal with Google is likely to be a net positive for Reddit’s stock prospects. While Reddit primarily generates revenue through advertising, the agreement with Google is expected to secure around $200 million over the next three years, which is no small sum.
For their part, Reddit users have so far not been up-in-arms about the latest news. Given Reddit’s penchant for mass protests, like over the 2023 API changes or even 2015’s firing of a beloved Director, there has been relatively little chatter on the platform about the deal with Google. It remains to be seen whether this latest FTC development will change that.
