Reddit’s reported $60 million data deal with Google may be the answer to its profit prayers and IPO dreams

Hi folks! Kylie Robison here. Yesterday, Reddit filed publicly for an initial public offering, after half a decade of anticipation. Coincidentally, I had interviewed Reddit CTO Chris Slowe onstage two weeks ago at a conference hosted by tech startup CodeSignal. I emailed him quickly to say, hey buddy, congrats, and also, way to bury the lede!

Reddit’s IPO is a long time coming, and burying the lede (the biggest news, for you non-journalists) is right, since the unveiling of the S-1 yesterday hardly scratches the surface of Reddit’s significant developments. On the same day as the IPO filing, reports emerged about Google paying a whopping $60 million annually for access to Reddit’s API, a detail buried beneath the headlines, but central to Reddit’s trajectory.

Think of it like this: Google needs to compete with OpenAI, Meta, and others to create ultra-intelligent AI systems. To train these systems, it needs loads of data, almost exactly like Audrey II from Little Shop of Horrors (a carnivorous plant with an insatiable appetite for humans). “Feed me, Seymour,” but with troves of articles, scientific journals, tweets, Reddit threads—you name it. Reddit closed its API last year (which caused a lot of blowback) because it knew that it held something important and that Big Tech firms would pay up for the access.

So, it seems to have worked. Google is coughing up big money to presumably feed its AI all the weird user posts Reddit has to offer. Have you ever Googled a question with “Reddit” at the end because that’s the only way to elicit a useful answer? Seems like the tech giant caught on.

As reported by 9to5Google, Google’s use of Reddit data extends beyond enhancing the efficiency of training large language models (LLMs). The tech giant is actively exploring ways to streamline access to Reddit content across its products, and for its part, Reddit will use Google’s Vertex AI “to enhance search and other capabilities on the Reddit platform,” according to Google. Anticipate future Google interfaces that offer more immersive showcases of Reddit content, underscoring Google’s commitment to facilitating engagement with Reddit communities and conversations.

So Reddit seems poised to make quite the splash as a public company. Except, of course, it’s not that simple. As my colleague Jessica Mathews writes, the timing of Reddit’s IPO is risky. Recent tech IPOs (like Instacart, which went public in September and whose share price has dropped 11% since) have struggled to maintain their initial momentum.

What’s more, Reddit remains entirely unprofitable. According to its IPO filing, Reddit had a net loss of $90.8 million in 2023. Despite revenue growth, reaching $804 million in 2023, up from $666.7 million the previous year, the ongoing losses pose a challenging proposition for potential public investors in today’s market climate.

Yes, it won’t be easy for Reddit on Wall Street, but maybe the API gambit will be the boost it needs to reach profitability. There are tons of companies working on AI that have untold billions of dollars to throw around, and even more companies happy to accept the largesse like my alma mater Business Insider, which reportedly secured $10 million annually from OpenAI for using its reporters’ articles as training data.

Worth mentioning is OpenAI CEO Sam Altman’s significant 8.7% stake in Reddit, potentially valued at around $435 million. Perhaps OpenAI can parlay that into an API deal with Reddit, too? What’s a tech success story without Altman, anyway? We all know he could use a win.

Kylie Robison

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This story was originally featured on Fortune.com