In August 2021, Fedility, with $4.5 trillion under the belt, led a Reddit Series F funding round that raised $410 million, bringing Reddit’s valuation to $10 billion. On April 28, 2023, Fidelity listed Reddit, Inc. Series F securities as 0.041% of Fidelity Blue Chip Growth Fund (FBGRX), valued at $16.6 million.

When Fidelity made that initial investment in 2021, the asset manager spent $28.2 million on staking Reddit shares, making that a 41.1% cut. Friday’s monthly fund disclosure dropped that estimated worth further. The Fidelity Blue Chip Growth Fund now holds $15.4 million in Reddit stake, down 7.36% from April and 45.4% since August 2021.

The fund has mixed results, at 36.70% year-to-date performance, much lower than AI-boosted Nvidia or Bitcoin mining stocks. In addition to marking down Reddit, Fidelity cut Discord’s holdings by 47% since the $3.3 million initial investment, now valued at $1.7 million.

Typically, later stage-issued securities, such as Series E/F, lead up to Initial Public Offering (IPO). Earlier in the year, it was speculated that the Reddit IPO should come online in H2 2023., at a targeted $15 billion valuation. The fact that Fidelity is cutting down their estimated worth suggests an erosion of confidence from investors, and understandably so.

Reddit’s Biggest Strength Imperiled

Reddit relies on unimpeded traffic as a social media site or aggregator of forums (subreddits). As such, it is then monetized by ads. Reddit succeeded in accomplishing this, increasing its ad revenue to $522.4 million in 2023 vs. $161.4 million in 2020.

However, in pursuing even greater revenue, Reddit briefly stumbled on its strategy. In April, the company announced it would charge access to its API data. An Application Programming Interface on every platform is valuable because third parties can integrate with the platform using the API.

On Reddit, doubly so because third parties could tap into Reddit API to analyze engagement metrics, automate posts, and monitor threads. By charging API access, Reddit planned to generate revenue from its data. However, the community felt that the social media company’s real intention wasn’t to generate additional revenue but to kill third-party applications.

One app developer, Christian Selig from Apollo, estimated that charging API access could rack up to $20 million annually, accounting for $1.7 million per monthly 7 billion API requests. Expectedly, the proposed changes were perceived as unsustainable, receiving a wide backlash that briefly turned against Reddit’s bottom line.

Reddit Blackout

Reddit’s subreddits are moderated by volunteer moderators who typically have complete control over the subreddits they manage, including the ability to remove users and posts and change the subreddits at a fundamental level.

To protest against the API charges, many moderators started locking down subreddits on June 12th. However, the lockdowns were announced as short-lived for only a few days, taking the protesting wind off the gate. Interestingly, as over 7,000 subreddits went dark, much of Google searches were rendered worthless as they tapped into Reddit.

This again showed why Reddit is called the ‘front page of the internet.’ It also demonstrated Reddit’s inherent value, as having one account for thousands of forums is drastically more convenient than having thousands of accounts for each specialized forum.

Similarweb statistics showed a ~7% traffic decline in the pursuing two days, while Reddit’s data showed a 7.16 min average visit time, down from the pre-shutdown average of 8.4 min.

Even before the blackout, Reddit CEO, Steve Huffman, announced the layoff of 90 staff, which is 2% of Reddit’s total 2,000 employees. Predictably, Huffman applied the pressure to end the blackout where it was most effective – threatening to remove moderator powers. He called leading protestors “landed gentry,” referring to medieval privilege born from social status and land holdings.

Eventually, the Reddit blackout collapsed as Reddit brass hinted at invoking Rule 4 of the company’s “Moderator Code of Conduct,” which would’ve effectively removed protesting moderators. Accordingly, charging for API access will proceed as planned. In the end, it is unlikely that any engagement evasion will have an impact due to Reddit’s inherent aggregator value.

Mainstay Reddit Apps Gone

As of June 30th, the heavy Reddit API access charge divorced the site from its most popular iOS and Android apps that enhanced the Reddit experience: Apollo, BaconReader, and Rif is Fun (RIF). Nonetheless, some heavyweights will remain, planning to rely on subscription charges from its users to continue accessing Reddit’s content.

One is Narwhal, another app streamlining the Reddit experience for iOS gesture-based viewing. The app’s developer, Rick Harrison, said that Narwhal “will continue to operate as it has for many years (except it will not have ads anymore).” In the future, version 2 will include subscriptions to mitigate the costs of API fees.

If this subscription model succeeds, other apps will likely copy it to regain API access.

This article originally appeared on The Tokenist

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