Generative AI search has pushed traffic off a cliff across most of the internet, but not on social platforms. Reddit included.
Reddit’s global average daily users increased by 17% year over year in Q1 to 126.8 million. In the US, daily users were up 7% YOY to a total of 53.5 million.
And Reddit isn’t expecting its audience growth to slow down. It’s targeting a billion global daily users and 100 million in the US, said Co-Founder and CEO Steve Huffman during the company’s Q1 earnings call on Thursday.
The influx of new users in Q1 helped contribute to Reddit’s 74% YOY growth in advertising revenue, bringing its total to $625 million for the quarter. Investors rewarded Reddit with a 12% bump in the platform’s stock price in after-hours trading.
Audience growth aside, advancements in Reddit’s ad tech stack can claim the bulk of the credit for its revenue growth, said Reddit CRO Jen Wong.
Specifically, she shouted out the January launch of the Reddit Max AI-powered optimization suite and the maturation of Reddit’s Dynamic Product Ads commerce-focused offering, which launched last year.
Stacking the ad stack
Reddit’s tech stack investments are paying off the most for lower-funnel advertisers, Wong told investors.
The platform’s newest performance-focused product, Reddit Max, is its answer to Google’s Performance Max and Meta’s Advantage+ campaign optimization solutions.
After just a few months in market, early adopters of Reddit Max have seen a 17% reduction in cost per action and 25% more conversions on average, Wong said.
Plus, half of this initial pool of Reddit Max users is using the solution’s AI features for generating ad creative, Wong said.
Growing the total number of advertisers adopting Reddit Max is a priority for Reddit’s sales teams, Wong said. She emphasized that, while these are promising signs for the fledgling product, it’s still early days for Reddit Max in terms of adoption, and it has plenty of room to catch up to PMax and Advantage+, which have been in market for years.
Meanwhile, Reddit’s Dynamic Product Ads (DPA), which place shoppable product links directly inside user discussions about purchase decisions, are producing better returns for commerce-focused advertisers after more than a year in market, Wong said. Advertisers using DPA saw a 90% increase in return on ad spend compared to last Q1, she said.
And the type of high-intent conversations happening on Reddit’s platform that DPA targets were up by 40% YOY in Q1 – meaning there was a surge of DPA-appropriate inventory.
These results translated into deeper investments from lower-funnel advertisers. Reddit’s lower-funnel revenue increased by triple digits YOY for the quarter, Wong said, and performance revenue now accounts for 60% of Reddit’s ad revenue overall.
In addition, Reddit’s active advertiser count grew by 75% YOY.
Looking ahead, Wong pointed to Reddit’s ecommerce partnerships with Shopify and WooCommerce as ways to get small and medium-size advertisers to adopt Dynamic Product Ads. Travel and automotive brands also haven’t tapped DPA so far, she said.
For upper-funnel campaigns, Reddit made its auto-bidding feature for brand-building campaigns available to all advertisers, and brands report a 16% pricing improvement on average when using it.
Asked by an investor to characterize the state of the ad market amid the start of the US-Israel-Iran War, Wong said there’s been some geopolitical volatility, which has some advertising partners “planning on shorter cycles” and making month-to-month commitments, rather than longer-term deals. However, she added, there’s been “no material change in their commitments and their outlook.”
The traffic road map
On the search traffic front, Reddit is up while almost every publisher is down.
Weekly users arriving to Reddit from search were up 30% YOY in Q1, Huffman said.
Contrast that with digital publishers like People Inc. having half their Google Search traffic disappear in the past couple of years.
It appears Reddit’s partnership with Google is paying off. The social platform frequently tops Google’s search results and is one of the most-cited sources across AI Overviews, an advantage Huffman was quick to note to investors.
Reddit is making the most of its growing traffic, too. Average revenue per user (ARPU) was up 44% YOY in Q1, totaling $5.23.
But while Reddit’s US daily user base grew 7% in the quarter to 53.5 million, logged-in US users grew by just 1%.
Wong downplayed the disparity. In response to an investor question, she said monetization between logged-in and logged-out users is “pretty consistent.” The main reason logged-in users bring higher ARPU is because they spend more time on the platform, she added.
Still, Reddit is making changes to its login experience to increase its share of verified human users and to prevent bot traffic from being served ads.
For example, Wong said Reddit is porting the “good bots” used by its moderators over to its developer platform, which will make it easier to distinguish them from malicious and fraudulent traffic. Reddit is also experimenting with passkey logins where a human has to take physical action in order to verify their login.
These changes are part of growing Reddit’s daily active user count, which remains the “primary focus” of the company, Huffman said, since “revenue is doing very, very well.”
Asked by an investor when he expects Reddit will reach its 100 million daily US users goal, Huffman replied, “I don’t know the timeline, but we are relentless in our work to get there.”
