Q1 2024 Earnings Summary
- Sustained User Growth Driven by Product Improvements: Reddit reported that logged-in users, the core of their business, increased by 27% year-over-year. The growth is attributed to product enhancements such as more efficient sign-up, better onboarding, and improved home feed relevance, leading to consistent user additions of approximately 2 million users per month over the past year. This sustained growth indicates that Reddit's focus on product performance and quality is effectively driving user retention and engagement.
- Significant International Expansion Opportunity through Machine Translation: Reddit is investing in machine translation to translate its predominantly English content into other languages, with French already in testing and Spanish upcoming. Since Reddit's user base is currently 50% U.S. and 50% international, compared to peers who are 80-90% international, there is a substantial opportunity to accelerate international growth. This initiative could dramatically expand Reddit's reach and user base in non-English speaking markets.
- Increasing Value of Reddit’s Authentic User-Generated Content in the AI Era: Reddit's vast repository of authentic, human-generated content is becoming more valuable as people seek genuine opinions and advice amidst increasing machine-generated content. This positions Reddit favorably for data licensing opportunities, particularly in AI data models, as there is increased interest in Reddit's data for various uses. Additionally, the enhanced demand for authentic content can drive user engagement and attract advertisers seeking to connect with engaged communities.
- Reddit has low visibility into the second half of the year, with potential risks from overreliance on the U.S. market, which accounts for 80% of total revenue, and uncertainties related to the U.S. election, inflation, and geopolitical context, which could impact advertisers and revenue growth.
- The company acknowledges that it faces tougher comparisons (comps) in Q3 and Q4, with previous year comps at 23% versus the 12% in Q1, potentially making it challenging to maintain the current growth rates.
- While Reddit saw an increase in users, over 60% of the sequential increase in users were logged-out users, who monetize at a lower rate than logged-in users, and the company faces challenges in converting them to logged-in status, which may limit revenue growth despite user growth.
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User Growth Drivers
Q: What's driving user growth and is it sustainable?
A: User growth is driven by improvements in product quality and performance, leading to increased retention. We're adding about 2 million users per month, with logged-in users up 27% year-over-year. Focus areas include better sign-up processes, improved onboarding, and enhanced home feed relevance. This growth is sustainable, and we're excited about international expansion through machine translation. -
Ad Market Outlook
Q: How is the ad market trending, and what are your expectations?
A: The ad market is healthy, with brand advertising as strong as it's been since 2022. We achieved 48% revenue growth in Q1. While we feel good about our strategies gaining traction, we have low visibility into the second half due to tougher comps, potential impacts from the U.S. election, inflation, and geopolitical factors. -
Investment Philosophy
Q: What's your approach to investment and cost growth this year?
A: We've maintained consistent investment, with total adjusted costs up 9% this quarter. Our philosophy is to have revenue growth twice as fast as cost growth over the long term. We're adding resources selectively, focusing on areas like machine learning and sales teams, and we're seeing good scale in our operations. -
Data Licensing and AI
Q: What are your thoughts on data licensing and AI partnerships?
A: We take a selective approach to data licensing, ensuring user privacy and partnering with companies that are the right fit. There's strong interest in Reddit data for social listening and finance. In AI partnerships, we won't license behavioral data or any non-public information, and we emphasize that partners must respect our platform and users. -
International Expansion
Q: How are you approaching international growth and machine translation?
A: We're leveraging machine translation to make Reddit accessible in other languages, starting with French and soon Spanish. Early results are promising, leading to improved retention and increased traffic from non-English speaking users. This technology allows us to accelerate international growth significantly. -
Developer Platform Potential
Q: What's the potential of the developer platform, and how does it impact growth?
A: The developer platform is a near-term opportunity with hundreds of developers already engaged. We're aiming to fully open it this summer, introducing monetization features later this year. It complements our platform and can enhance our ad business. -
Conversion of Logged-Out Users
Q: How are you converting logged-out users to logged-in users given the monetization difference?
A: We focus on providing a great experience to logged-out users without forcing conversion. While logged-in users are core to our business, there's significant potential in monetizing logged-out users through targeted ads on specific pages, like post detail pages. -
Impact of AI Platforms
Q: How will AI platforms affect Reddit's content and traffic?
A: In agreements with AI platforms, we require that they link to Reddit and properly credit us. We won't allow companies to use our data without repercussions, and we're open to partnerships that protect our platform and users. We believe that proper integration with AI platforms can be beneficial. -
Video Strategy
Q: How are you incorporating video into the platform?
A: Video is one of our fastest-growing content types. We're enhancing the viewing and creation experience, improving the video player, and integrating video seamlessly into the feed. Once the product is performing well, we'll explore monetization opportunities. -
Advertiser Diversification
Q: What progress have you made in scaling and diversifying the advertiser base?
A: We're diversifying across geography, advertiser size, and verticals. The scale channel, including mid-market and SMB advertisers, showed 50% growth year-over-year. We're expanding into new verticals like finance, pharma, and CPG, indicating significant opportunity with thousands more advertisers. -
On-Platform Search Opportunity
Q: What's exciting about on-platform search for users and advertisers?
A: On-platform search is a significant opportunity, with over 1 billion queries per month. We're improving features like spell check and auto-complete and enhancing the user interface. After refining the user experience, we plan to monetize search result pages, which could be highly effective given the explicit user intent.