On Friday, Reddit disclosed that the U.S. Federal Trade Commission had initiated an inquiry regarding the company’s practices concerning the sale, licensing, and sharing of user-generated content with third parties for the purpose of training artificial intelligence models. As Reddit gears up for its highly anticipated IPO, the social media platform stated that it had received a letter from the regulator requesting information and documents pertaining to these matters.
The company said it would cooperate with the FTC inquiry. “Given the novel nature of these technologies and commercial arrangements, we are not surprised that the FTC has expressed interest in this area,” Reddit said. It added that it does not believe it engaged in unfair or deceptive trade practices.
A source familiar with the matter told Law360 that the FTC is seeking to clarify how companies use user data for AI purposes and to protect consumers. The source said the agency may seek to hold talks with Reddit’s executives and request documents and other information.
The source added that as the world increasingly relies on artificial intelligence, it’s important that it be developed ethically and responsibly. Reddit’s cooperation with the FTC could help establish that standard.
Reddit’s licensing deals for AI-related work are a key part of its effort to generate additional revenue. In February, the company signed a $60 million per year contract with Google to provide the search giant with content for training its AI models. That deal showcased the company’s effort to boost earnings amidst fierce competition from platforms such as TikTok and Meta Platform’s Facebook, where advertising has been scarce.
In its IPO filing, Reddit projects that revenues from the data-licensing program will increase in each of the next three years and become the primary source of revenue in 2024. Investment banks will closely watch those figures, as they typically shape investors’ thinking about a company’s valuation when it plans to go public.
Investors will hope for a smooth IPO process, mainly because the market has been turbulent lately. Several companies, particularly consumer technology stocks, have needed help getting their offerings off the ground this year. The IPO of Reddit could set the stage for more such debuts. According to the prospectus filed this week, the IPO is expected to raise about $748 million for Reddit and its existing stockholders. It expects to price its shares between $31 and $34 each. That valuation would put the company at a more than six-times revenue level.
