Reddit reveals FTC inquiry into deals licensing data of its users for AI training

Reddit said Friday that the Federal Trade Commission has opened an inquiry into the social media platform’s sale, licensing or sharing of its users' posts and other content to outside organizations for use in training artificial intelligence models.

The company disclosed the inquiry Friday in a filing with the Securities and Exchange Commission that cited a letter from the FTC dated Thursday.

“Given the novel nature of these technologies and commercial arrangements, we are not surprised that the FTC has expressed interest in this area,” Reddit wrote in the filing. “We do not believe that we have engaged in any unfair or deceptive trade practice.”

Like many other social media platforms, Reddit has expressed interest in business deals where AI companies pay to access databases of human-written text that AI models can use to refine their ability to converse, answer questions and produce written work and images on request.

Almost a month ago, Reddit a written statement about the deal.

Friday's disclosure comes as Reddit prepares to sell shares to the public for the first time. The San Francisco-based company on Monday filed paperwork that projected a price for its initial public offering valuing the 18-year-old platform at up to $6.4 billion.

Reddit Sees More Than 20% Sales Growth in 2024 as IPO Looms

Bloomberg Business

Reddit Inc. is telling potential investors in its initial public offering that it expects revenue in 2024 to grow by more than 20% versus the previous year, according to a person familiar with the situation.

The social media company gave guidance at a roadshow event that it was set for a similar revenue trajectory to what it saw last year, the person said. Revenue in 2023 grew to $804 million, according to its filing with the US Securities and Exchange Commission. That’s 20.5% above the previous year’s figure, data compiled by Bloomberg show.

Reddit is expecting to break even this year in terms of adjusted earnings before interest, taxes, depreciation and amortization, the person said. The company posted an adjusted Ebitda loss of $69.3 million for 2023, the filing shows.

Separately, estimates from some of the offering’s underwriters also see Reddit’s revenue increasing at similar rates to the company’s own projections, a different person said, asking not to be identified as the information isn’t public.

A representative for Reddit declined to comment.

The figures are being discussed as part of the marketing to potential investors of the IPO, which could raise as much as $748 million for the company and a group of investors who are employees, according to the filing. Together they are selling 22 million shares in a $31 to $34 price range, the filing shows.

The projections would mark a continued turnaround for Reddit, which turned profitable in the fourth quarter last year, Bloomberg News has reported. The company ventured beyond advertising revenue, its traditional source of income, by allowing third parties including Alphabet Inc.’s Google to license access to data on its platform for a fee. Reddit expects a minimum of $66.4 million in revenue this year from those agreements, the filing shows.

Analysts at investment banks that underwrite a company’s offering have a model for its growth and earnings power over the next few years, based on their own assumptions and research. Those numbers often play a role in shaping investors’ thinking around the company’s valuation in the offering, though underwriters are restricted in when they can publish the research, typically for about 25 days.

The IPO is being led by Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of America Corp., the filing shows. Reddit intends to price the offering on March 20 and begin trading the following day, Bloomberg News has reported. The company plans for its shares to trade on the New York Stock Exchange under the symbol RDDT.