Reddit’s investments in its ad platform are paying off big time. But it’s still got a long way to go to catch up to its social media peers.
The company reported $253 million in Q2 ad revenue on Tuesday, good for a 41% year-over-year growth rate. Reddit’s ads business drove its overall Q2 revenue to increase 54% YOY, for a total of $281 million.
Advertising is still Reddit’s meal ticket. And it seems on track to crack $1 billion in revenue this year, compared to the $804 million in revenue it reported for 2023.
But until Reddit’s ad revenue tops the $2 billion per year mark, it can’t really be considered competitive with platforms like Snap, Pinterest or LinkedIn, all of which earn at least that much from advertising annually, according to eMarketer (h/t Brian Morrissey).
And Reddit’s ads biz doesn’t even come close to YouTube ($8 billion), TikTok ($10 billion), Instagram ($31 billion) or Facebook ($33 billion).
However, Reddit is betting on continued growth in its user base and increased demand from performance advertisers to close the gap between it and some of the larger social platforms.
Performance marketing
Comparisons to competitors aside, Reddit is seeing a surge in advertiser activity.
Spend by mid-market and SMB advertisers grew 50% YOY in Q2, said Reddit COO Jen Wong.
Q2 also benefited from a stable ad market, she said. Demand from retail, pharmaceutical and financial services advertisers was particularly strong, growing over 50% YOY. Together, this group comprised the highest spending vertical for the quarter, she added, whereas typically tech advertisers are Reddit’s top vertical.
International revenue was up 49% YOY, driven by spend from large and mid-market advertisers in the European market. And Reddit’s relationships with the Big Six ad agencies – Publicis, WPP, Omnicom, IPG, Dentsu and Havas – were also key growth drivers for the quarter, Wong said.
Reddit’s growing user base also contributed to the increase in ad spend. Daily active unique users – Reddit’s most important growth metric, according to CEO Steve Huffman – totaled 91 million for the quarter, up 51% YOY. Average revenue per unique user was $3.08, up 2% YOY.
Half of Reddit’s ad revenue for the quarter came from performance campaigns, Wong added. This reflects Reddit’s efforts to develop its platform for lower-funnel campaigns, she said. To further attract performance advertisers, Reddit built out its conversion API ecosystem through a new partnership with CDP mParticle. It also launched Dynamic Product Ads, a performance-focused ad product, in April.
And the company anticipates that its acquisition of Memorable AI, announced last week, will further accelerate campaign performance. CFO Drew Vollero divulged that the acquisition cost $19.9 million and will be reflected in Q3 earnings.
A major priority going forward will be enabling advertisers to match their first-party data to Reddit’s platform for ad targeting and measurement, particularly for retail media campaigns, Wong said.
While Reddit offered plenty of detail on performance spend, the company didn’t break down brand advertiser spend for the quarter. In response to an investor question about brand advertisers, Wong mentioned that the platform has been seeing increased upper-funnel activity both in programmatic auction and via its direct-sold takeover inventory, but she didn’t offer specifics.
AI opportunities
Outside of advertising, Reddit also highlighted another emerging growth driver: content licensing deals with generative AI companies.
Non-ad revenue was $28.1 million for the quarter, up a whopping 690% YOY, mainly thanks to licensing deals with Google and OpenAI.
Reddit is leaning into an opportunity presented by the blending of internet search, content summarization and the training of AI models, Huffman said.
“Our preference is for Reddit to be open and indexed in third-party search, and we are in discussions with both big and small search engines towards this end,” he said. “However, some players in the ecosystem have not been transparent with their use of Reddit content, and in those instances, we block access to protect Reddit content and user privacy.”
Huffman didn’t name names on the call, but he previously called out Microsoft, Anthropic and Perplexity for scraping Reddit’s data without compensation.
Beyond licensing its data to third-party AI vendors, Reddit is also exploring its own AI applications, Huffman said. The platform will begin testing AI summaries and content recommendations on its search result pages later this year.
