Recently, $Reddit (RDDT.US)$ A conference call for the 2024 fourth quarter Earnings Reports will be held. Reddit stated that it saw an increase in the number of monthly active advertisers in the fourth quarter, with strong brand advertising performance. The revenue from the marketing funnel's top tier (brand advertising) grew at the fastest rate in three years. Mid-tier and low-tier revenue (in-stream performance advertising) accounted for about 60% of total advertising revenue and drove more than half of the year-on-year growth this quarter. Company executives pointed out that the business scale in the mid-tier market and small to medium-sized enterprises indeed grew well and will focus on developing what the company calls selected first and second tier small to medium-sized enterprises, which have seen significant growth. The platform can accommodate more businesses, and this growth trend will continue into 2025.

Regarding the AI model, the company believes that the use of this technology will become commoditized. This is good for the Industry and good for the company since essentially every aspect of the Business can benefit from this technology, including auditing, security, copy generation, internal tools, and Search Engine.

At the same time, the company stated that essentially what the company does is continuously acquire the latest information. A Search Engine relies on information input, and the fundamental layer is the same. If it stops acquiring new information, its relevance will gradually decrease over time.

Q&A

Q: I noticed a significant improvement in the quality and quantity of advertisements since the third quarter. How will you focus on developing new types of advertisements in the future? How will these advertisements differentiate Reddit from other platforms.

A: When we consider building advertising formats, we always want to leverage Reddit's uniqueness. The uniqueness of Reddit, I think of two aspects:

First is the Community information, a real treasure trove of trusted opinions and suggestions on Reddit, along with the engagement and interest found on Reddit. Therefore, we launched comment section advertisements in 2024, where user stickiness and activity are currently high, and commercialization is still in its early stages.

Secondly, in terms of product form, we continued to improve our AMA (Ask Me Anything) this quarter. This is very unique for Reddit, allowing for two-way interaction and dialogue between brands and the Community.

In addition, the opportunities in shopping also excite us, and we have done more work on creative product development and dynamic product optimization. Finally, this is something we have always wanted to do, which is to incorporate signals and perspectives from the Community into advertising to provide more context. I believe all of the above measures can enhance brand engagement and conversion rates, and we are excited about the work ahead.

Q: Strong profitability in the fourth quarter, but still ending 2024 with significant losses. How confident is Reddit in maintaining or expanding profitability in 2025?

A: Let's first talk about the $0.484 billion loss in 2024, detailed as follows: we lost $0.575 billion in the first quarter. But this was due to the massive Stock-based Incentive distributions from the IPO ($0.595 billion), which is considered an extraordinary event.

However, starting from the second quarter and for the next three quarters, we have achieved cumulative profitability. Moreover, in terms of measuring performance Indicators, I will mainly focus on the cash flow statement and balance sheet.

In terms of trends, I believe they are favorable for us. As I mentioned, revenue grew by 71% this quarter, and the profit margins are high. The rate of revenue growth is 3 to 5 times the rate of cost growth. These are all good signs of the Business expanding in a very positive way.

Most importantly, we made a profit of $71 million this quarter. In the last quarter, we achieved GAAP profitability, with a profit of about $30 million.

Q: In this more conversational search format (Reddit Answer), what types of user queries have been primarily observed?

A: We only launched Reddit Answer in December, and it's still a test version. Essentially, it tests how deep Reddit's corpus is and whether Reddit can provide convincing answers to some broad questions.

In terms of the testing results, the above questions are all positive.

It is believed that we have a very good start. Even I am learning on Reddit and am excited about the depth of the answers provided by the platform.

For example, a question I can ask and answer is that I think there is not a good report elsewhere online, so I have asked many authors. What is the best way to start reading this author's work? You will find that it turns out every author on Reddit has been asked this question a million times, so you'll get well-annotated answers.

Another cool question I think is: 'Tell me, how do fans interpret the release of season two of "Severance" based on their understanding of season one.' You can even revisit the entire conversation or those dialogues that happened on Reddit three years ago. Interestingly, in core products, community, and dialogue products, you actually only interact with the content from the last day or the last 24 hours. But over 20 years of dialogue, our users have left us an absolutely vast and in-depth amount of information about everything.

In the future, we will continue to iterate on this product. Answers, while currently located within the Reddit platform application, differ from the normal search within the platform. Over time, this year we actually hope to have only one search function within the app, called Reddit Search, which will help users browse Reddit, look for subreddits, and even answer subjective, difficult, and interesting questions. The Answers feature will be launched in an independent form.

Q: You mentioned the changes in Google's search algorithm in the fourth quarter, and I would love to hear your thoughts on these changes. Do they affect user engagement or revenue?

A: Changes in Google's search algorithm are indeed occurring, and they have actually been happening. I guess about twice a year, so this isn't the first time nor the last time.

For us, it mainly affects unregistered users in the USA. The change in this data is interesting because it did show a decline at first, but shortly after, there was a recovery at the end of this quarter.

I believe our content and technology adjustments have made significant adaptations. More crucially, we have indeed seen an increase in the number of queries for Reddit in our own search dashboard, indicating that regardless of what happens on Google's side, Internet consumers generally want to eventually use Reddit.

As we mentioned, the start of Q1 2025 performed very well, both in terms of our search traffic and other traffic.

Q: Regarding search, can the tools on Reddit do more than what Google can do now? How do you view the commercial relevance of these searches? Is there a percentage or qualitative description of how much of this search content can be monetized?

A: The reason Reddit search is interesting is that we are the only search provider focused on Reddit. Other search engines are general, covering the entire Internet. Our relationship with Google has always been very good and deep, and we continue to maintain a symbiotic relationship.

However, Reddit is just one of many content providers on the Internet. We know that the content on Reddit is widely used across the Internet. From Answers, we learned that there is more content on Reddit than we imagined six months ago, such as behavioral data of searchers. By focusing on Reddit, we can do what we do in Reddit Answers, which means Reddit Answers will respond to questions by linking to specific Reddit comments written by real people. So this is a set of highly annotated answers.

In this way, you not only get answers but can click on them and actually view the entire conversation. So I think this is really interesting for things like recommendations, travel, advice, etc., where there are no standard answers. There are many answers, and also much discussion about them.

We see an additional benefit in 'Answers' in that when you read the answers at the bottom, you can see where the answers come from, thus there will be numerous posts and a large number of subreddits to help users expand more interest communities on Reddit. I have spent 20 years on Reddit, but I am still looking for new communities.

Reddit is actually commercial in many ways, and we estimate that about 40% of posts can actually be classified as potentially commercializable posts, specifically posts about products and services. However, in many aspects, such as joining a hobby or starting to ski, there can also be commercial potential, because when you begin a hobby, you tend to want equipment and supplies.

So I believe Reddit inherently has this functionality, and the interesting and exciting aspect of Reddit Answers lies in this recommendation idea.

I believe Reddit is a place where people seek purchase advice and make decisions, and what Answers does is present this advice in a way that showcases all perspectives on Reddit. This is a great opportunity; considering search, one would find that the search intent is very strong, and people genuinely want to convert these recommendations into purchasing behavior.

Therefore, the more we can create experiences like Reddit Answers that encourage a mindset of recommendations, thinking about what they want to buy, the greater the opportunity we have to attract brands or marketers to meet this demand and convert it into action.

If you think about what we are building, we are building shopping, right? Shopping is product-level advertising creativity. We have already laid the groundwork for keyword targeting, which is context-based. These two parts enable us to create monetization opportunities at meaningful times; this is an early product test. But as the product develops, we can profit from this intent.

Q: Do you have any thoughts on cost growth this year? I don’t know if you can share your views on employee numbers or the direction of costs for the year.

A: Guidance for the third quarter, fourth quarter, and here for 1Q25 is a growth range of about 20%. However, we won’t provide guidance further out, as current revenue visibility and predictability do not extend beyond a quarter.

But I believe overall, we have areas to invest in. I think the hiring pace may be slightly faster than the previous year. Last year, we added over 200 people. We are still hiring talent in engineering, and we are forming a small search team.

But I also want to say that we can quickly promote some project investments that help accelerate our revenue growth. I indeed believe we will hire more employees than last year, but we do hope to be flexible in making investments throughout the year.

Q: Have you seen an impact on retention rates, engagement, or even login conversion rates? In the long term, could Reddit Answers change your view on data licensing? Then, a quick question about the future year. How do you view the balance between USA user growth and ARPU growth? In these two areas, in which aspect do you feel you have the most visibility?

A: I think it is premature to draw conclusions about the retention rate of Answers right now. It is only available in English and has not launched on all platforms, or rather, it has barely launched on all platforms, so it is really just getting started.

Therefore, we are more testing the technology and potential from a product perspective, and it all looks very promising.

I think that if we are to explain how this will lead to retention, what excites me greatly is that the general users on Reddit usually come to Reddit as seekers.

That is what I mentioned in my opening remarks. They often come with questions to Google and then find that Reddit can answer their queries.

I think enabling users to search directly on Reddit, optimizing their queries on Reddit, and ultimately conducting these types of queries directly on Reddit, even over time integrating search into onboarding training and similar tasks, I believe these are all very interesting things worth trying as platform search continues to improve.

So I think it opens up a variety of doors, and almost everything we do on the product side is aimed at increasing retention rates.

However, I believe that the biggest retention challenge Reddit faces is that when users appear on Reddit, we need to help them quickly find the community that is best suited for them, which is also a search matching issue.

Therefore, over time, search will achieve this, and that is key.

In terms of data authorization, what you see here is that we are still in the market. We are still engaged in various Trades. I remember just yesterday, we announced an agreement with ICE, and we are also negotiating with some large companies.

However, we are also looking for opportunities internally to monetize the value of our data (corpus) in other ways, which is the process of developing products like Reddit Answers. Of course, we can help others build good products and good models, but we can build the best products based on our own data, which should also be our focus.

In terms of user growth and ARPU growth, I believe we still have a lot of opportunities regarding users. I think we have not fully penetrated the USA market, even though the USA is currently our most mature market, we have made significant progress in many countries globally.

Community is ubiquitous, and therefore, we believe that creating a truly cosmic-level product has huge potential - everyone belongs to a Community, and everyone wants that sense of belonging. Everyone has questions. Everyone is on a journey of life, and these things are all on Reddit. The way we achieve these goals is through the topics we have discussed, performance, quality, and some of the new products (like search) actually involve both aspects. Of course, Global growth is also driven by machine translation.

Regarding ARPU, in the fourth quarter, both the USA and other parts of the world achieved good growth, and there is still plenty of room for growth. We know that this is an opportunity that grows over time. But our thought is that we are trying to increase revenue by continuing to expand our verticals, improving performance, and making our advertising platform simpler so that we have more advertisers, thus bringing more demand to our platform. As we continue to increase users, our share will also grow.

You see, the growth of ARPU in the USA and other parts of the world in the fourth quarter is still in its early stages. The ARPU in other parts of the world is just a small fraction of that in the USA, so there is significant growth opportunity there. But similarly, we believe this does indeed increase our revenue, while also increasing our share and users. User growth is a very strong value driver for us, along with some brand safety and personalized advertising loading work. Besides the advertising format work we added in the comments, there are many other tasks.

Q: Steve, I want to talk to you about the measures you are taking to continue converting unregistered users into registered users. Perhaps you can share with us the biggest progress you made in 2024. Looking ahead to 2025, what are the internal focuses to continue converting unregistered users into registered users?

Then, Jen, I know that there will be many advertising plans in 2025. Can you help us understand that? When you look at your product lines, which areas are the easiest to improve, and which areas will take longer to reflect in the profit and loss statement?

A: Take Reddit USA as an example. If there is a community that fits everyone and that community is us, then why isn’t everyone using Reddit? Well, I think there are two reasons. Either they haven't heard of Reddit, which is becoming less likely, or they have tried Reddit but it didn't work for them, and that’s the user group we focus on.

So these users either come from external searches, like Google, or they go directly to Reddit's front door, right? They will go to Reddit.com, or open the app. Those users who enter the Reddit platform directly from an unregistered state are where we focus most actively, because at that moment they are saying to us, I am willing to join this platform.

Therefore, the most effective work we do is to "make the login process easier first". Logging in used to be very difficult, and we lost 80% of registered users because of username selection. Now it is much smoother; users can log in and register directly using their email, phone number, Google, or Apple.

In addition, the new user onboarding process has also improved significantly, including recommending personalized interest communities. Our machine learning in the homepage information feed, our ability to understand your interests and expand them or show you more relevant subreddits has become better. So now this has become the primary driver for users joining new communities on Reddit, as well as the primary driver for user retention.

Our current work and future goal is whether we can make Reddit excel at providing answers for them. This is something like Reddit Answers, which is a login page specifically for searchers, making Reddit search itself really great so that users can understand that they can ask these specific questions on Reddit. The idea of building products for searchers (not just scrollers) is very important to us, so we expanded our mission to include that.

Q: May I ask what changes were made to Google's algorithms in the fourth quarter? Many opinions suggest that Google favors Reddit, and will algorithm adjustments prioritize Reddit? So what exactly changed? How can you ensure that future changes won’t be more problematic than this time? I think you mentioned that Google’s changes mainly targeted unregistered users. I think this means there was a very small, or even no impact on revenue, but it would be great if you could clarify that. Then, given your comments regarding the recovery of DAU growth in the first quarter, can you tell us how things adjusted in the fourth quarter based on Google’s algorithm changes so we can understand the potential growth, thereby considering the impact on the first quarter?

A: We cannot provide a suitable answer on how Google's search algorithm is specifically adjusted. However, we are not concerned as it does not affect revenue. For now, we can only say that we are very satisfied with the progress of user return.

In fact, like other website platforms, we are always affected by Google's fluctuations; you can refer to their blog for articles on search adjustments. We have a good relationship with them. We cooperate in various ways, including how to continue directing traffic to our platform.

Q: Can you discuss the progress made in increasing the number of advertising clients, as well as your initiatives in 2025 and 2026 to boost the number of advertising clients, including potential focus on self-service aspects?

The second question I want to return to is about search aspects. Perhaps we can explore this from different angles regarding the intentions and signals it might drive across the entire platform. Could you discuss the power of search, even in enhancing engagement on the Answers platform, and its ability to improve conversion rates and intention across the entire platform?

A: We have seen growth in the number of monthly active advertising clients in the fourth quarter. The diversification of advertising categories continues, and the platform can accommodate more advertisers; we are satisfied with the progress in this area.

Unlocking these features is driven by multiple factors:

First, we focus on the ease of use in onboarding and activation, simplifying the activation of features like Gen-AI title generators, eliminating the friction of launching and running creatives on the platform, and achieving automation capable of optimizing for maximum clicks or minimum click costs. These semi-automated features enable small advertisers to enter the platform.

As a reminder, our strategy is currently not focused on automated services. Our business scale in the mid-market and small to medium enterprises has indeed grown well, as we provide them with some treatment, very easy treatment, to assist them throughout the process. In terms of the average revenue of the advertising clients we observe, it is worth it and helps them retain customers and improve engagement. We focus on developing what we call selected tier 1 and tier 2 small and medium enterprises, which are growing very well. The platform can also accommodate more businesses. We will continue this growth trend into 2025.

We will work at the top of the funnel (brand advertising) to attract more advertisers.

Therefore, we have been doing this, such as establishing an acquisition team in the mid-market last year. This year we will continue to do this, while also conducting paid marketing at the top of the funnel, working on SEO around our business website, and establishing relationships with partners who collaborate with small businesses, then we can bring potential customers to our platform.

Develop Reddit Pro, which is the landing point for businesses to showcase themselves on Reddit, understand the platform, and then become advertisers.

Q: When considering strategic focus or the positioning of the business internationally and domestically, how should we think about user channel optimization or monetization paths and trends, and how to build higher density around advertising plans globally, rather than just comparing the business regionally in proven domestic markets?

A: The ratio of Reddit users in the USA to non-USA users is roughly 50%, but 80% to 95% of global users are from outside the USA.

Everything we talk about regarding growth today actually relates to the quality and performance of search. These not only help us achieve growth in the USA, the most mature market, but also help us grow in markets outside the USA, right? Product quality is always the key.

In addition, we have several initiatives that I think are promising. For instance, we have discussed machine translation multiple times.

The first country where we deployed this service was France. Even among the countries we focus on, the growth rate in France is 30% to 40% faster than in the USA. This is because we first have machine translation. We are currently rolling it out in six languages, and it will expand to more languages throughout the year. Additionally, costs have decreased, so we will continue to expand this business.

Then there is our Community work. We will send people to various countries to identify theme communities, such as Sports, CD, and important cultural fields, to ensure the existence of communities, recruit hosts, train hosts, organize gatherings, and all high-contact diplomatic work. We are also conducting such work in many countries around the world. So the potential exists because community content can be universal, and our work is making an impact.

We focus on users, and we do have markets like the United Kingdom, which are becoming more mature for us. Similar to the situation in the USA, Reddit has become one of the popular search terms that Google intends to enter in the United Kingdom.

Everything we have built in the advertising stack and advertising platform is global; it serves global advertisers. Thus, they can benefit from all the performance improvements and usability we have built into the platform.

We are investing in marketing in the EMEA region to attract more advertisers, and we have also invested in expanding our market team, focusing on attracting more advertisers and bringing more clients onto the platform. As you saw in the fourth quarter, the growth rate in the EMEA region is the result of some of our investments.

Q: Many companies are turning to DeepSeek and its large language models, and you have also seen Facebook set new historical highs. Both are open-source.

So I want to ask you, both of your transactions were with proprietary large language models (Google and OpenAI). My question is, are you using these open models to help create content for clients? If open large language models win the large language model war, will this threaten your revenue stream from content licensing?

A: We love open-source AI models just like every company. I think there are plenty of opportunities here. You see, we use commercial models, we use open-source models. We do it ourselves.

So I think the situation we are seeing now is exactly what we said two years ago. The use of this technology will become commoditized. Open-source will keep pace with commercial products, and eventually, it will be available for everyone.

I think this is a good thing for the Industry, and of course, it's also a good thing for us, because basically every aspect of our Business can benefit from this technology, including auditing, security, content generation, internal tools, and Search Engine.

The second part of your question is, what impact does this have on our licensing opportunities? The short answer is none. You see, every existing foundational model, including DeepSeek, is based on the data generated from Reddit. Without Reddit data, these models would not exist.

But we are essentially a channel that continuously acquires the latest information. Imagine if a Search Engine stopped indexing in 2021, then over time, its usefulness would diminish. It's the same at a foundational level. If it stops acquiring new information, its relevance will decline over time.

Therefore, you need to consistently provide the latest information. Reddit offers insights into various aspects of human experiences. Right? AI cannot tell you how it feels to try a new hairdryer or listen to headphones, but users on Reddit can.

So this kind of information is very valuable; AI cannot convey what it feels like to go through a breakup and what you should do, but that information can come from Reddit. So I think there is no change. In fact, it doesn't change anything about our current situation, and we are very excited about the open-source model.

Editor/lambor