Reddit took a victory lap on its Q3 earnings call on Thursday.
For the first time, the social platform achieved its pre-IPO profitability goal of 40% adjusted EBITDA, said CEO Steve Huffman.
Reddit is also the No. 3 most-visited site on the internet for US-based users, according to Semrush – trailing behind only YouTube and Amazon.com.
And Reddit touted some impressive numbers for its advertising business, including $549 million in Q3 ad revenue and a 74% YOY growth rate.
But while Reddit had plenty to crow about, it was less sanguine about the rise of generative AI search, which Huffman said is “not a traffic driver today,” in response to an investor question.
AI growing pains
That even Reddit isn’t seeing traffic from AI search – despite its high-profile $60 million AI licensing deal with Google – bodes ill for any publisher hoping chatbots will drive traffic to their site.
However, Huffman added, he’s optimistic that Reddit’s AI partnerships – which also include a deal with OpenAI – will eventually bear some kind of fruit beyond licensing fees.
He said Reddit’s relationships with its direct AI partners are “healthy” and have yielded plenty of insights about “the value of Reddit’s data” and “where we can mutually help each other’s products and create better consumer experiences.”
However, Reddit is also suing AI startup Perplexity and data-scraping companies Oxylabs UAB and SerpApi, alleging unlicensed scraping of its content and data.
When an investor asked Huffman if these companies “think they can just take your IP without paying for it,” Huffman responded, “I think you captured their logic,” but declined to offer an update on the ongoing lawsuit.
Given the challenges posed by AI’s takeover of the web, Reddit sees its best future growth prospects as not coming from web search but from its in-app experience. Currently, Reddit gets about half of its traffic from Google Search and half from direct site and app visits – and it’s clearly interested in growing the latter portion.
The insights derived from AI deals are informing Reddit’s efforts to shore up its own search product, Reddit Answers, which is compatible with both web and in-app but has yet to be fully rolled out on either touch point. Huffman said Reddit’s goal is “to build a global, unified and modern search experience.”
Reddit COO Jen Wong added that “our consumer product road map is focusing more intently on the Reddit app,” which the company believes “can be more personalized, have easier onboarding and incorporate search more consistently.”
The full-funnel approach
On the advertising side, Reddit touted its investments in new ad formats and onboarding features for advertisers as boosting its business.
The platform’s Q3 ad revenue of $549 million accounted for about 94% of its total revenue for the quarter. It also increased its advertiser accounts by 75% YOY, Wong said.
Average revenue per user (ARPU) was $5.04, up 41% YOY. However, Reddit CFO Drew Vollero said ARPU was “low on an absolute basis and remains an opportunity.”
Reddit’s advertising growth for the quarter is notable, given multiple market watchers have downgraded their ad spend projections for the year due to persistent concerns of volatility caused by the Trump administration’s unpredictable tariff policy.
As far as Reddit is concerned, Wong said, “the market feels broadly stable.” However, she said, “tariffs are on the mind of some of our customers,” which means “efficiency is important.” With that in mind, she said, Reddit has been counseling advertisers on how to improve ad efficiency across the marketing funnel.
While Reddit has long focused on performance advertising as a growth driver, both brand and performance advertising were up by more than 70% YOY. Vollero added that the company saw mid- to high-double-digit growth across the upper, middle and lower funnel.
That across-the-board growth is attributable to Reddit’s efforts to build a full-funnel advertising platform, Wong said.
For example, machine-learning-driven optimizations for lower-funnel conversion campaigns improved ad performance by 20% in the quarter, she said. Meanwhile, conversion revenue covered by integrations with Reddit’s conversion API tripled YOY.
As a source of continued lower-funnel growth, Wong pointed to further development of Reddit’s Dynamic Product Ads and improvements to in-app shoppability.
When it comes to upper-funnel campaigns, Wong shouted out a beta test of a new auto-bidding feature as simplifying budget management for brands, leading to a 15% increase in upper-funnel impressions and lower prices for brand advertisers.
And Wong also shared some takeaways from a campaign that used its new Freeform ad format, which lets advertisers create posts that feel native to the platform and that use multiple media types. Golf clothing company FootJoy saw clickthrough rates 100% higher than benchmark and time spent 50% higher than benchmark from testing Freeform.
However, asked by an investor whether Reddit’s Q3 ad revenue growth came mainly from ramping up its ad load, Wong downplayed the importance of rolling out more ad inventory and said higher CPMs and impression growth were the bigger contributors. Daily active unique users averaged 116 million for the quarter, up 19% YOY.
She added, “It is not a core part of our strategy to increase ad load,” but rather “to make every impression more valuable and to design ad units for spaces where we don’t have ads, like ads in comments.”
However, Wong conceded that when Reddit experiences “supply/demand tightness,” it sometimes increases ad load “to make sure the marketplace is consistent for advertisers.” She said, “We did use that lever temporarily in Q3, but we turned it back.”
