November 01, 2024 | Read Online

News or Something

This Wednesday, some familiar companies reported earnings:

Alphabet (GOOG) beat estimates with revenue of $88.3B vs. $86.3B expected and EPS of $2.12 vs. $1.85 expected. Alphabet stock was up 2.9% at close
Visa (V) beat estimates with revenue of $9.6B vs. $9.5B expected and EPS of $2.71 vs $2.58 expected. Visa stock was up 2.9% at close
AbbVie (ABBV) beat estimates with revenue of $14.5B vs. $14.3B expected and EPS of $3.00 vs. $2.91 expected. AbbVie stock was up 6.4% at close

But perhaps the biggest winner on Wednesday was the newcomer, Reddit (RDDT):

Beat estimates with revenue of $348.8M vs $312.8M expected, and EPS of $0.16 vs -$0.07 expected.
Adjusted earnings outlook to $110M - $125M vs. $85M expected
The quarterly earnings beat is the company's first profit ever (20 years)
Reddit stock was up 42% at close

The social media site that began out of a basement in Medford is now up 135% since its IPO debut…

internet money

Reddit's IPO took place on the NYSE in late March.

The offering priced at $34, the top of its price range ($31 - $34), and a $6.4B valuation which represented a discount from its 2021 high of $10B.

Large shareholders in the offering included:

Advance Publications. Owner of Conde Nast, which owns Vogue, New Yorker, Wired, and more. Originally acquired Reddit for $10M in 2011. 30.1% stake
Tencent. Chinese tech conglomerate. Led Reddit's $300M Series D round in 2019. 11% stake
FIdelity. No intro needed. Led Reddit's $420M Series F round in 2021. 9.5% stake
Sam Altman. CEO of OpenAI. Led Reddit's $50M Series B in 2014. Remember this for later. 8.7% stake

On the first day of trading, Reddit soared as high as 70%, eventually ending the trading day at $50, a roughly 50% increase from its debut.

For the past year, the company's focus has been on closing generative AI deals to bolster their stock price.

Big Tech companies are always on the lookout for data sources to feed their models, and Reddit's user data is a gold mine for generative AI.

→ In February, Reddit struck a $60M/year deal with Google to make its content available for training the search engine giant's artificial intelligence models

→ In May, Reddit struck a deal with OpenAI for access to real time content from Reddit's data API. No financial terms were disclosed.

In their Q3 financial statements, the AI deals accounted for $33.2M of revenue in the 'Other' category, suggesting the OpenAI deal saw a similar price point as the Google deal.

newstew / what does alexis do?

Reddit began in 2005, nearly 20 years ago.

Alexis Ohanian and Steve Huffman were seniors at UVA who skipped their spring break vacation to go to Cambridge, MA, and listen to Paul Graham give a lecture.

Paul Graham sold Viaweb to Yahoo for $50M and was a legend in the tech community.

After Graham gives the talk, Ohanian and Huffman manage to convince him to get drinks, where they pitch him on the idea of online ordering for groceries and fast food. Graham likes the idea enough to invite them to apply for Y-Combinator, which he had just founded.

They got rejected from the first class of Y-Combinator.

Huffman was particularly disappointed about this perceived slight. The duo had journeyed a few hours north to Boston in anticipation of being accepted. On the train ride back, Ohanian gets a call from Jessica Livingston, Graham's girlfriend and business associate.

Jessica tells them that they made a mistake and extends an offer to them. The one caveat is that Huffman and Ohanian need to change their startup idea.

The first class of Y-Combinator included:

Justin Kan
Sam Altman
Aaron Swartz
Chris Slowe

and others…

Eight groups of young founders received a $6,000 per person stipend to live in Cambridge for the summer under the guidance of Paul Graham and Jessica Livingston

There was no media coverage

you will never write a resume again

Ohanian was the non-technical guy, not just at Reddit, but at Y-Combinator in general. His software engineer classmates continually jabbed at his lack of coding expertise, asking Huffman, "But what does Alexis do?" at various points throughout the summer

Here's what Alexis did:

chose the name Reddit even though the rest of the team insisted on Newstew
designed the alien mascot that still serves as a logo
built hype throughout the town of Cambridge, talking to journalists and anyone who would listen
ordered pizza for the technical talent

As time went on, Aaron Swartz, a high school dropout with a knack for code, and Chris Slowe, a Harvard PhD bored with academia, left their respective projects to work on Reddit alongside Huffman and Ohanian.

The site slowly gained traction over the course of a year, and then traffic started to pour in as niche gaming communities were formed.

In February 2006, Ohanian's networking efforts culminated in an email from Kouroush Karimkhany, an executive at Conde Nast in charge of acquiring new media properties.

I'm a friend of Rachel Metz. I'm also the director of biz dev for CondeNet, the internet arm of Conde Nast, which, as I'm sure you know, publishes magazines like Wired, GQ, Vogue, New Yorker, Vanity Fair, etc. I'm intrigued with your technology and was hoping to set up a time to talk about possibly working together. I'm open the rest of the day today and Thursday, but will be traveling for a week starting Friday. Do you have time for a phone call? Also, are you based in Boston?

Kourosh Karimkhany to Alexis Ohanian via email. February 22, 2006

On Halloween that same year, a deal was closed; Conde Nast acquired Reddit for $10M

Later on, when asked the question what does Alexis do, Huffman responded, "I made Reddit. Alexis made Reddit cool."

where are they now

The story truly begins post-acquisition, but a single memo cannot do it justice. For the sake of time, I think it's more interesting to check in on what the main characters are doing today.

An epilogue montage for Reddit founders and other members of Y-Combinator's first batch:

Alexis Ohanian

Alexis founded Seven Seven Six, a venture capital firm that has grown to ~$1B AUM. In recent years, he has distanced himself from Reddit after publicly falling out with Huffman in 2020. Did not show up to Reddit's IPO. Married tennis star Serena Williams

Steve Huffman

Steve is currently the CEO of Reddit. Landed a $193M pay package in 2023 for his efforts, with cash payment of just $341,346, stock awards worth $98M and stock options worth $94M

Justin Kan

Justin, one of Steve's close friends from Y-Combinator, founded Twitch and sold it to Amazon in 2014 for $970M. He also founded Atrium, a lawtech startup, which shut down in 2020. Currently an investor and founder at Stash, an NFT marketplace

Sam Altman

Sam is the CEO of OpenAI and a prominent venture capital investor most known for his time at Y-Combinator.

Headlines

Robinhood earnings miss Street expectations. Reuters article here
OpenAI launches ChatGPT search to compete with Google. CNBC article here
Kalshi's 28 year old CEO says betting market is more reliable than polling. Fortune article here
MaC VC raised $150M Fund III. TC article here