WHEN: Today, Thursday, March 21, 2024
WHERE: CNBC’s “Squawk on the Street”
Following is the unofficial transcript of a CNBC interview with Reddit CEO Steve Huffman on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) today, Thursday, March 21. Following is a link to video on CNBC.com:
DAVID FABER: Social media company Reddit getting ready to make its public debut right here at the New York Stock Exchange. Reddit CEO Steve Huffman and our own Julia Boorstin are with me here at Post 9, ahead of course of the opening bell. Julia, let me turn it over to you to begin the questions.
JULIA BOORSTIN: Thanks, David. And Steve, thanks so much for joining us here. As we await the opening trade of Reddit shares. This has been a long time coming. Reddit is a 19-year-old company. And you’re taking an unusual approach to the IPO itself opening up 8% of retail allocations to your active moderators and also your active users. What kind of interest did you see from them? And are you concerned they’re going to sell today? Because they have no lockup period?
STEVE HUFFMAN: Sure. So first, thank you for having me here. It’s truly an honor to be here. It’s been a journey and to be surrounded by our employees. I just — I’m overcome with gratitude and for our communities to make Reddit what it is. So in this IPO, yes, we invited a number of our users and have a healthy retail component beyond that. And our goal there was to bring in, I think, as is the ethos of Reddit, level the playing field, bring people in on the same terms that professional investors would. And so it’s a free market. I hope they believe in Reddit and support Reddit. But the goal is just to get them in the deal, just like any professional investor would.
BOORSTIN: Well, there has been a lot of chatter on WallStreetBets, which is obviously a very popular Reddit forum, that has not been so positive. You mentioned this as a potential risk factor in your S-1. Are you concerned that having this very, very big presence with those retail investors, very high-profile presence, is going to drive volatility in a bad way?
HUFFMAN: Well, first of all, look, like I love WallStreetBets. I’m a user. I’ve — I’ve seen their comments over the last couple of weeks, so I just send them my regards. And again, that’s — that’s Reddit. Reddit is people. Reddit is a fun and special, but sometimes crazy place. And so I wouldn’t expect anything less from our community.
FABER: It doesn’t upset you, though? You’re like, wait a second, we’re going public. You guys are a part of this. You’ve helped us in terms of our success. Why aren’t you more supportive?
HUFFMAN: Look, that’s exactly, I think, they’ve helped us get here. Reddit is nothing without our users and communities. And I think that’s the beautiful thing about Reddit, is they tell it like it is. But you have to remember, they’re doing that on Reddit. And it’s a platform they love. It’s their home on the internet. And, look, I think it’s such a privilege for — for I and the team to get to work on Reddit, but they really are Reddit.
FABER: Steve, one of the questions I think that’s come up a lot is, the company’s been around as Julia said for roughly 19 years and has not been managed to be profitable in any of those years. And so, what will change or has changed if you haven’t been able to figure out how to get to profitability over that period of time?
HUFFMAN: Well, so first, that’s not exactly true. So we have been around 19 years. So I came back to the company, though, in 2015. And that’s when we really started to build the business of Reddit. And that hit high gear in 2018, really, when Jen Wong joined as COO. And she’s really been my partner in running Reddit and building this business. But we were — we made a profit in the back half of 2023. We grew revenue three times as fast as costs last year. And so what’s — I think, beyond the community of Reddit and the platform of Reddit, there’s actually a very nice, special business here. And our gross margins are very high, the high 80s, and have been for a long time. And so even small improvements in revenue go straight to the bottom line for us. And so this is truly, I think, a special company. And profitability is, you know, it’s an important milestone for us. And we’re getting closer and closer.
FABER: I know Jim has a question as well for you. Jim?
JIM CRAMER: First, Steve, thank you for being on the set. It’s fantastic.
FABER: Thanks, Jim. It’s great to see you.
CRAMER: Absolutely. I wanted to know, you know, when you and I talked, it’s just really important, I believe, that people who have been so important to your company, the Redditors, get stock if they want stock. Were the brokerage houses understanding of that? Is it placed with people you think that actually have done so much and might actually want to hold on because it could be great — a great stock?
HUFFMAN: You know, it honestly was not a controversial ask at all of our bankers and of the investors. What we’ve been pitching, and look, we’ve been pitching Reddit for two years, telling them why we do this, why it’s special. And we’ve met so many investors who — who get Reddit, who understand Reddit, and know that this is — including our users in a moment like this, it’s the most natural thing we could do.
CRAMER: To make it clear, it’s not just WallStreetBets that want stock, right? I mean, those people might be sellers, who knows? You’re talking about hardcore people who have really helped build your brand away from stocks. I imagine that they want to be long-term holders.
HUFFMAN: I — look, I hope so. I think the best investors of Reddit are people who use Reddit. And so, I want our investors to be users, and I’d love our users to be investors. I think, look, we all — we’re all building this together. We’re building the platform, and now we get to build the company too. I think that’s such a privilege.
BOORSTIN: So, speaking of building the company, your business is currently 95% advertising revenue. And with those — for those ad dollars, you’re competing against the giants. We’re talking about Meta, we’re talking about Google, it’s an incredibly competitive space, and you’re very small compared to these other players in terms of the number of daily active users you have. What is your strategy to be able to grow market share in such a tight environment?
HUFFMAN: Sure, so I have two answers to that. First is the digital ads market is so huge. It grows by 5 to 10 Reddits per year on its own. And then, what’s special about Reddit is whatever you’re into, whatever you’re going through, whether you’re getting into college, getting your first job, relationships, ups and downs, whatever health malady you have, and everybody’s got one, it’s all on Reddit. And so, Reddit is all about context and interests. So, literally every brand’s customers are on Reddit somewhere. So I think it’s — it’s actually a very good fit, and for us, I think there’s really no constraint on how big the ads business can be.
FABER: But you haven’t been able to monetize that effectively yet. I mean, you know, I’m looking at a Bernstein piece monetization well behind peers despite starting to sell ads in 2006. You had $804 million in revenue in 2023. That’s not exactly a huge number.
HUFFMAN: Well, look, we had $12 million in revenue in 2015. So, look, we’re getting there. And I like the way our business is scaling. I think our advertisers are rooting for us because Reddit, it’s not about personal and private information. It’s about connecting with your customers around shared interests. And so we’re seeing, I think, a lot of momentum in the market. So, look, we’ve got to start somewhere. But I think —
BOORSTIN: But momentum in the market, but your 20% growth last year was still slower than other companies at your sort of age in terms of monetization. But this raises a question about your new revenue streams. And you’ve talked about how your emerging revenue stream is licensing your data to train AI models, and you made a deal with Google. But then the FTC started an inquiry saying maybe you hadn’t secured the legal right to do that with your community. What do you have to say about that FTC inquiry and how much of a threat it could pose to this new revenue stream?
HUFFMAN: So, that’s not what the FTC said at all. In fact, they didn’t say anything other than, we’d like to know more. So, you know, the — this is a — I think it’s a new, exciting space. Data licensing is hardly new. We’re not doing exclusive deals. And, in fact, in any contract we do, we include protective provisions for our data and our users’ privacy. Because it’s very important to us to be considerate about where our data goes, what it’s used for, and preventing people from using it to, for example, reverse engineer the identity of our users. And so, that’s the sort of thing we’re doing in the market. Because the status quo before this moment is everybody is crawling everybody using the data for who knows what. So, right now, I think locking that down, making it safe and predictable, that’s been our goal.
BOORSTIN: And so, you’re confident that this data licensing for AI training will become a meaningful revenue stream, and over what time period?
HUFFMAN: So, I think what we know for sure is that the value of Reddit’s data is increasing. You know, historically, we’ve looked at Reddit as our core business. And, look, this is still our core business, community and conversation. But the value of our data is growing. In a world where more and more content on the internet is created by artificial intelligence, the premium on actual intelligence, which is what Reddit is, continues to grow. And so, look, it’s a new business for us. We just started doing this, like, this year in 2024. So, we’ll see where it goes. But, I mean, I like the shape of it so far.
FABER: I learned a new term, NSFW, which means not safe for work. I have to admit, I wasn’t aware of that. But, of course, apparently, a good amount of the platform, or some of it, includes content that is not safe for work. And there’s a question, can that be monetized? Because if it can, that might be a positive thing. But these are things that advertisers may not want to be associated with. How do you do that?
HUFFMAN: It’s kind of beside the point whether it can be monetized, because our answer is no. We don’t monetize it. We have no plans to monetize it. And, honestly, that just keeps things simpler for our advertiser customers. We just say, there’s no ads there. There won’t ever be ads there. And I think that content is important. Like, sex and sexuality is an important part of the human experience. Therefore, you can find it on Reddit. But not all of Reddit needs to be monetized. And our users who look at that sort of content, they also look at the entire rest of Reddit. And the commitment we make to advertisers is, you know, you will be where you want to be. We’re in the happy customers business. And so there’s a portion of Reddit, the vast majority, that I think is great for advertisers. And that’s where we do our business.
FABER: And finally, net proceeds come in $450 or $500 million to the company to use. What are you going to do with the money?
HUFFMAN: Look, grow the business, number one. You know, maybe there’s M&A opportunities here and there. But I’d say first priority is grow Reddit, continue to just make this company bigger, better, healthier.
FABER: Well, we’ll watch today the debut coming up, and we certainly appreciate you joining us. Thank you.
HUFFMAN: Thank you both. Thank you.
FABER: Thank you.
BOORSTIN: Thanks for being here.
FABER: Julia, thank you as well.
