Reddit is giving advertisers what they want: more easy buttons.
Thanks, in part, to its investments in campaign automation, new ad products and white glove service for top advertiser clients, Reddit netted $465 million in ad revenue in Q2, an 84% year-over-year increase. Advertising accounted for the vast majority of Reddit’s $500 million in revenue for the quarter.
Reddit also grew its daily active users by 21% YOY to 110.4 million. Average revenue per user increased 47% YOY to $4.53.
All told, Q2 was Reddit’s most profitable quarter since it went public last March, CEO Steve Huffman told investors on Thursday. As a result, its stock price jumped about 16% in after-hours trading.
What explains Reddit’s impressive growth? Its responsiveness to advertiser demands for greater ease of use and more integrations with third-party ad tech, according to COO Jen Wong.
But while the ad business is ascendent, Reddit is still working on a strategy for getting the most out of its generative AI deals, Huffman said.
New formats and features
On the advertising front, at least, Reddit’s strategy is firmly established.
It has a three-pronged approach to ensuring advertiser success, Wong said: driving performance across campaign objectives, improving usability of its ad platform and offering unique ad formats. Reddit has made recent progress on all three fronts, she said.
In terms of adding new ad inventory, Wong hyped Reddit’s new Dynamic Product Ads (DPAs), which are now out of beta testing. These shoppable formats are producing 2x higher average return on ad spend (ROAS) than standard conversion campaigns, she said.
On the performance front, Wong pointed to “ongoing investments in our ad models and formats,” which are driving “higher click and conversion volume.”
For example, Reddit’s acquisition of creative optimization platform Memorable AI last August is making it easier for brands to optimize their campaigns, Wong said. And earlier this week, Reddit introduced auto-bidding for brand awareness and reach campaigns, which should also yield ROAS improvements for marketers, she said.
Reddit is also emphasizing integrations with third-party ad tech in response to advertiser demand for greater interoperability with commonly used ad tech solutions, Wong said.
Reddit’s integration with Smartly.io’s ad automation platform, which was announced in May, is an example of these closer third-party partnerships. The Smartly.io integration is making it easier for brands to launch and optimize campaigns across formats, including DPAs, she added.
Reddit also introduced its Community Intelligence engine at Cannes Lions, which draws on the platform’s pool of billions of human conversations to help marketers improve their ad campaigns.
The company created two products so far using Community Intelligence. It now offers a listing tool that compares a brand’s consumer sentiment to its competitors by drawing on real conversations among Redditors. Reddit also launched so-called “conversation summary add-ons,” which takes positive sentiments about a brand posted by Redditors and adds those quotes to display ads. This new format delivers 10% higher click-through rates than traditional display ads, Wong said.
And Reddit’s conversion API (CAPI) is also encouraging performance advertisers to increase budgets. Revenue from CAPI-covered conversion campaigns tripled YOY in Q2, Wong said.
New and old advertisers
All of these investments are helping Reddit bring in new advertisers. It expanded its advertiser base by more than 50% YOY in Q2.
But, according to Wong, most of Reddit’s ad revenue growth still comes from growing existing client budgets. For instance, the company created a global accounts team to help its larger advertisers scale across Reddit’s global footprint.
There’s still room to expand relationships among Reddit’s larger clients, Wong added. Reddit’s direct sales team will focus on bringing in more brands from larger customer portfolios, such as DTC holding companies, she said.
And when it comes to courting smaller and midsize advertisers, Wong said, “what they require is very simple automation that delivers the performance that they need.” As the ad tech market consolidates, she said, brands will pivot their budgets to the platforms that can best deliver that automation and performance.
Currently, Reddit’s platform is “semi-automated,” she said, but “end-to-end automation is on our radar.”
AI search and future growth
While there’s a lot for Reddit investors to be encouraged about on the advertising front, the platform is also one of the biggest beneficiaries of the rise of AI search, thanks to its close partnership with Google and growing relationships with other AI companies.
Reddit is currently the No. 1 most-cited source across AI models, said Huffman, quoting recent data from Profound.
“Reddit” also remains one of the most-searched terms on Google’s traditional search, Huffman said. “Anyone using Google will end up on Reddit at some point,” he added.
That being said, and Reddit’s Google partnership notwithstanding, Reddit, like so many websites, is seeing less referral traffic from Google Search as AI Overviews take over the platform. “Traffic from Google varies from week to week, but overall, it was a headwind in Q2,” Huffman said in response to an investor question.
While traditional search referrals may be on the decline, Reddit is seeing increased adoption of its own AI-powered search offering, Reddit Answers, albeit from a very small base. Reddit Answers grew its weekly users to six million in Q2, up from one million last quarter. For comparison, Reddit’s core search had 70 million weekly users in Q2.
Even though Reddit has proven to be a valuable source for training AI models, it doesn’t seem eager to throw its weight around in dealing with AI companies. Asked by another investor whether Reddit would consider referral traffic guarantees as part of its deals with AI search partners, Huffman punted.
“Everybody can see that Reddit data is extremely valuable, but we’re still learning how much folks depend on our data and what they use it for,” he said. “We’ve still got some time before we need to answer these questions in terms of what structures might look like going forward.”
