The FTC is investigating Reddit over its AI data licensing practices ahead of its IPO.

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Although Reddit’s core business relies on online advertising, the company is looking to make money in other ways, and is in the “early stages” of its “data licensing efforts.”

“The opportunity does not conflict with our values ​​and the rights of our Redditors,” Reddit said, citing its users and forum moderators.

The 19-year-old company has offered to sell shares at $31 to $34 in its IPO, valuing the business at around $6.5 billion. Reddit is trying to hit the public market during a historically slow period for tech IPOs. There haven’t been any notable venture-backed tech debuts since Instacart and Klaviyo in September. And before that, the market had largely closed since late 2021.

Reddit’s revenue grew 20% last year to $804 million. About 98 percent of its sales came from advertising. The remaining 2% includes data licensing.

“These programs may subject us to evolving approaches to the regulation of this data and to complex and evolving data privacy and data protection, misuse, and intellectual property laws, rules and regulations,” Reddit said in the latest filing. can affect.”

An FTC spokesman declined to comment.

Reddit said it inked some data licensing deals in January with a total contract value of $203 million over two to three years. It expects to recognize at least $66.4 million from these contracts in 2024.

The same week that Reddit filed for its IPO, Google announced an expanded partnership with the company, giving the search giant access to data to train its AI models.

“We believe the data from our growing platform will be a key factor in training leading language models (“LLMs”) and serve as an additional monetization channel for Reddit,” the company said in its prospectus.

Reddit said it was “not surprising that the FTC has expressed interest in this matter”, “given the novel nature of these technologies and commercial arrangements”.

“We do not believe we have engaged in any unfair or deceptive trade practices,” Reddit said. “The letter indicated that FTC staff is interested in meeting with us to learn more about our plans and that the FTC intends to request information and documents from us as its inquiry continues.”

Reddit noted that any dealings with regulators could be “lengthy and unpredictable” and could result in “substantial costs” and other investigations and product changes that would “require us to change our policies or practices.” , management and other resources may be required to divert from our business, or otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.”

Watch: What Reddit IO Will Mean for Capital Markets

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