December 14—In a surprising move, Reddit announced it acquired short-form video platform Dubsmash. Terms of the acquisition thus far are undisclosed.
The social news aggregator said it made the purchase to expand its technological capabilities and presence within the streaming space.
Prior to its acquisition, Dubsmash ranked as the second most popular app of its type in the U.S. behind TikTok.
How Reddit Benefits from Buying Dubsmash
On its face, Reddit’s move to establish a beachhead in the highly competitive online video sector seems a bit strange. The company’s titular offering is best known for letting users interact and share content via a text-based interface. However, its current leadership believes the new purchase will be a major step forward in its organizational development.
Steve Hoffman, Reddit’s CEO, said the platform’s transition to video would be bigger than its mobile app launch.
The firm believes enough in its new direction to make significant shifts to its business strategy. Before taking over Dubsmash, the company only made two corporate acquisitions, and those startups made products built on top of its platform.
Established in 2015, Dubsmash received a $47.5 million valuation just one year into its life. In 2019, the service secured $20 million in a Series B fundraising round. This summer, the company, which receives 1 billion views a month, reportedly entered into takeover talks with Facebook and Snapchat. Given its popularity and past suitors, Reddit probably had to part with significant capital to expand its portfolio.
The social news service offered its new subsidiary favorable merger terms. The corporation will keep the startup’s app operating and will integrate its video editing tools into its own site and app. It is also absorbing Dubsmash’s 12 employees into its 700 people global headcount.
Will Reddit’s Purchase of Dubsmash Pay Off?
Right now, Reddit’s acquisition of Dubsmash looks like a high risk, high reward bet.
On the one hand, the firm’s eponymous platform does not seem like it desperately needs an organizational pivot. It boasted of having a daily average user base of 52 million people in October, up 44 percent annually. In addition, it presently ranks as the fifth most visited website in the United States. If the company changes its user interface or functionality because of its purchase, it might alienate its core fan base.
Also, with TikTok, Twitch, YouTube, Instagram, and Snapchat vying for dominance, the American streaming sector is extremely competitive. Reddit will need to pour lots of advertising and development dollars into its subsidiary to expand its footprint. And if the venture proves unsuccessful, it will have burnt a lot of cash and possibly hurt its public listing prospects.
On the other hand, the social news service would benefit in several ways from shepherding Dubsmash’s growth. Huffman noted that video ads are more effective than other marketing channels, so the startup’s technology could bolster its parent company’s revenue.
The short video service is also popular among demographics that Reddit is keen to attract. Approximately 70 percent of the platform’s user base is female, and one quarter is comprised of African-American teenagers. By comparison, Dubsmash’s subscribers are predominantly male, largely Hispanic and white, and age 25 to 29.
Provided Reddit can harness the buying power of Dubsmash’s audience, it could considerably increase its earning power and set the stage for a blockbuster initial public offering in a few years.