Reddit released its first-ever earnings report on Tuesday, providing the most in-depth glimpse into the company’s finances since it went public in March.
It reported $243 million in total revenue, a 48% year-over-year increase that resulted in its fastest rate of Q1 growth since 2022. The platform is mostly dependent on ads for revenue, with advertising accounting for $222.7 million and ad revenue up 39% YOY.
That ad revenue growth contributed to Reddit’s first profitable Q1 in terms of adjusted EBITDA, with its revenue growing five times faster than its costs for the quarter. The strong quarter led to a more than 5% bump in Reddit’s share price in after-hours trading.
CEO Steve Huffman attributed this growth to an increase in Reddit’s daily active user base due to a boost in search traffic from Google. He also touted Reddit’s AI use, which made it easier for small businesses to activate campaigns through its ad tech platform.
Reddit’s executive leadership also previewed its strategy for improving on-platform search and video, channels that can eventually be monetized. The company also shared plans to capitalize on AI licensing and its own AI investments.
Traffic flow
The nearly 40% bump in Q1 ad revenue was driven by increases in impressions delivered against a YOY decline in ad pricing, said COO Jen Wong.
In Q1, Reddit’s website and app attracted 82.7 million daily active unique visitors. It was a 37% YOY increase, which set an audience growth record for the company.
Of that total, 39.6 million were logged-in users, whereas 43.1 million were logged out. The logged-in user base grew by 27% YOY, and logged-out users grew by 48%. Which is notable, since logged-in, addressable traffic attracts a more premium price point from buyers, but the logged-out audience grew more sharply.
Huffman said the bump in logged-out traffic came disproportionately from search. It was prompted not by the partnership with Google that Reddit announced in February, but by improvements the platform has made to its page loading speeds, which improves its Google Search rankings.
Ad platform
When it comes to monetizing that traffic, Reddit is still mostly dependent on its largest advertisers. For instance, the company’s white glove service for large advertisers accounted for 60% of its ad revenue, Wong said.
But the ad business is more diversified across verticals. The tech vertical returned to growth this year, Wong said, and finance, pharma and consumer-packaged goods each grew by 50% YOY.
To stimulate more diversified demand, the company has also been developing its in-house ad tech, Wong said. That includes improving usability for smaller brands, driving full-funnel performance beyond brand awareness and offering advertisers unique creative formats.
In terms of improving advertiser experience, Wong pointed to investments in AI planning tools that reduce campaign setup time for smaller brands, such as a generative AI service for sponsored posts. Reddit is also building out its conversion API ecosystem to capture more campaign performance signals and feed those into AI optimization models.
And it launched its Reddit Pro analytics offering in March, a suite of AI-powered tools meant to help advertisers grow their organic presence on the platform. It’s currently in beta with more than 1,000 businesses, Wong said.
Such improvements are already yielding results, with click volume doubling in Q1 and click-through rate increasing by 40% YOY.
Ad inventory
On the ad inventory front, Reddit’s key products are sponsored posts that appear within content feeds and placements inside conversation threads – the latter of which saw particularly strong growth due to Q1’s strong traffic numbers, Wong said.
Reddit is also laying the groundwork for ecommerce ads. It launched shopping ads last year and is now testing dynamic product ads, Wong said.
The platform offers video ads, too, but wants to develop this service further, Huffman said.
It’s currently investing in its video player to improve the user experience and more seamlessly integrate video with text-based content and static imagery in its feed. Once those user interface issues are ironed out, advertisers can expect Reddit to lean more heavily into video monetization, he said.
Currently, Reddit does not place any ads within its on-platform search results. “But that’s obviously a very high-performing product elsewhere on the internet,” Huffman said, “and there’s no reason to believe that it wouldn’t be for Reddit as well.”
Once Reddit develops its search user interface further this year, he added, it will explore monetization.
Licensing agreements
Aside from ads, Reddit’s biggest source of growth comes from licensing its content to AI companies, including Google and other unnamed partners. Non-ad revenue was up 450% YOY, mainly due to these agreements.
However, the data licensing market is still nascent, and Reddit is being cautious about what companies it partners with, especially on larger-scale search and training deals, Huffman said. The company is exploring agreements with both large and small AI companies, but “not all players in the ecosystem are good fits for Reddit,” he added.
Still, licensing its user-generated content to the machines could be Reddit’s golden goose, especially as AI companies look for training data sourced from humans.
“The paradox I see is that, as more content on the internet is written by machines, there’s an increasing premium on content that comes from real people,” Huffman said. “And we have nearly two decades of authentic conversation.”
