Reddit Inc ($RDDT) Q1 2025 Earnings Call

Hi everyone. Thank you for joining our Q1 earnings call. Next month, Reddit turns 20. That's two decades of building something special on the internet—a user-powered platform where you can be your honest self and connect over topics you care most about, whether popular, niche, or personal. We've endured a lot of change over the years: the rise of smartphones, social media, and now AI, a global pandemic, and countless trends in how people connect online. But one thing has always held true: the world needs community and shared knowledge, and that's what we do best. Millions of people have contributed to Reddit being the eclectic and thriving place it is today. And as a result, we have over a 100,000 enduring communities.

20 years after our founding, we still have many opportunities and much to do. We took a big step forward last year, becoming a public company, and I think we delivered strong results in our first year. We carried that momentum into 2025 with another solid quarter of growth and profitability. Revenue was $392 million, up 61% year-over-year, marking our third consecutive quarter of growth over 60%. We ended the quarter with 401 million weeklies and 108 million dailies, both up 31% year-over-year, and we continue to scale efficiently while investing in the future. There's a lot to be excited about as we make progress on our core product and ad business, and we look forward to walking you through those updates today. Ever-shifting macro environments like these create both challenges and opportunities. We've grown through challenging times before. People need connection and information just as much in uncertain times, and we're well positioned to meet this moment.

Our unique advantage is that people come to Reddit with intent. They're not just scrolling, they're also seeking. They come to Reddit for real opinions from real people. When you ask a question online today, whether it's about a product decision or life choice, you're not looking for generic answers or sanitized summaries. You're looking for lived experience from personal recommendations, which is why Reddit is the number one platform for finding, quote, "possible solutions to people's needs or situations." And it's where half of all product conversations online take place. For seekers, Reddit's open nature is essential. It allows our content to surface across the open web and be easily found in search. We remain one of the last major platforms that doesn't require you to sign in to learn something because we believe that by giving everyone access to knowledge, we are helping fulfill the purpose of the internet. This openness broadens visibility, drives awareness, and brings us new users. But it also means that some of our traffic from external sources is variable. Ultimately, short-term shifts don't affect our long-term strategy or opportunity. We control our own destiny.

On the core product side, we're focused on making it a seamless experience to create, contribute to, and discover communities. Here's how we're realizing that vision through our product roadmap. First, using search to help people find what they're looking for on Reddit. Search will help new users opening the app for the first time find their home on Reddit, and it will help visitors from external search find the answers they're looking for. We're upgrading Reddit search and better integrating it throughout our product. Reddit Answers, our version of AI search, has reached 1 million weekly users, and last month we began its global expansion, beginning with Australia and the UK. We are now working to integrate it into Reddit's core search experience to further streamline the path from question to answer on Reddit.

Next, becoming a truly global platform by growing outside of the US. Machine translation is now available in 13 languages with more on the way. The focus markets where we've implemented our international playbook, including France, Spain, and Brazil, are growing nearly twice as fast as total international users. For us, internationalization isn't just a way to grow; it's essential to our mission of providing community and knowledge to everyone in the world. And finally, making Reddit more fun and easy to use. We're continuing to make it simpler and easier to contribute to communities. In March, we released a set of tools to streamline the contribution process for users, including post and comment guidance, which provides real-time suggestions to improve your post, post insights, and community suggestions. These improvements not only help users but also meaningfully reduce the burden on moderators, as the content people contribute is of higher quality and better aligns with community rules. We also have 400,000 people playing games and other interactive experiences built on our developer platform in Q1, showing that interactive experiences can thrive on Reddit. And we have more big ideas to drive engagement and premium content which will roll out later this year.

None of this happens without our communities. They are the heart of Reddit. From our Minecraft to our witchcraft to our craft beer, every subreddit is a world of its own, built by the people who use it. And this unique community model isn't just our history, it's our future. We're not looking to imitate any other platform. We're looking to make Reddit the best version of Reddit by being faster, easier, and better to use. On Reddit, it's not about perfection, it's about participation; not about broadcasting, but belonging. That's why 20 years in, we're still growing, still resonating, and still real proudly. Thanks again for being with us on this journey, and I'll hand it over to our COO, Jen Wong.

Thanks, Steve. Hello, everyone. It was another strong quarter and a good start to the year for Reddit. We continued our momentum from last year and grew total revenue 61% year-over-year to $392 million in Q1. Our unique proposition and core platform improvements continue to drive differentiated growth and positive outcomes for advertisers. In Q1, the advertising business grew 61% year-over-year to $359 million, driven by broad-based strength across objectives, channels, verticals, and geographies. Let me discuss our ad revenue drivers. Our strategy is to be a multi-objective ads platform, and in Q1 we continued to see growth across all objectives. Top of the funnel brand objectives accounted for about 40% of total ad revenue, consistent with prior quarters. Mid and lower funnel performance revenue accounted for about 60% of total ad revenue and was a major growth driver in the quarter. Across channels, our scaled business, which includes mid-market and SMB advertisers, continues to be a revenue and active advertiser growth driver. The total number of active advertisers, including large, mid-market, and SMB, grew over 50% year-over-year in Q1.

We saw broad growth across verticals, with 10 of our top 15 verticals growing over 50% year-over-year, led by pharma, retail, auto, telecom, and finance categories. Across geographies, US ad revenue grew 56% year-over-year, and international ad revenue grew 83% year-over-year, the fastest growth rate in three years. For impressions and pricing, ad revenue was driven by a year-over-year growth in impressions from underlying user growth, ongoing smart ad load work, increases in engagement, and improved monetization of the conversation page. The ads in comments placement contributed about 6% of impressions in the quarter, and we're seeing healthy advertiser adoption and performance outcomes with this placement. Ad pricing was up year-over-year. We are delivering more valuable impressions, and advertisers are benefiting from efficiency improvements.

Now moving to our ad stack, we're focused on three things: driving performance across objectives, improving usability for our advertisers and productivity for our salesforce, and offering our advertisers Reddit-unique solutions and ad formats. We made meaningful progress against each of these areas in Q1. First, driving performance of our ad solutions. The lower funnel investments that we delivered last year, including ML optimizations, measurement adoption, and format optimization, continue to drive positive outcomes and performance. In Q1, we delivered more outcomes to advertisers through meaningful year-over-year increases in conversion and click volume. We improved our ML optimization models and enhanced signal fidelity for our first-party pixel to improve tracking accuracy. We're encouraged with our progress driving adoption of our measurement tools, including our pixel and conversion API, CAPI. Lower funnel conversion revenue covered by CAPI tripled year-over-year in Q1. Over 90% of our managed advertisers have adopted our pixel, and we recently launched an integration between our pixel and Google Tag Manager, enabling easier adoption for new customers.

On formats, we're excited about the progress to date with our shopping ad unit, dynamic product ads, or DPA, which is currently in beta testing. In the quarter, we improved our DPA format in two areas: performance and ease of use. And we're excited about the roadmap for the rest of the year. We're continuing to deploy conversion and click prediction model improvements and enabling advertisers to onboard larger product catalogs with millions of products to deliver more relevant ads. In Q1, DPAs delivered an average of over 90% higher ROAS compared to campaigns run last year. Now, second, improving usability for our advertisers and productivity for our salesforce. We launched IAS brand safety and viewability in Q1, providing advertisers post-campaign measurement. In addition to our pre-bid integration that we launched last year, we also invested in AI enhancements for our sales teams that enabled them to 10x the number of insights reports that inform campaign decisions and saw substantially higher revenue for campaigns with these insights. Third, offering advertisers Reddit-unique solutions and formats. We're leveraging Reddit's community intelligence, including insights and signals from real conversations about almost every product and service to help businesses inform their strategy, learn more about their customers, and drive more performance. We've also launched enhancements to our upper funnel offerings. In Q1, we began a series of upgrades to our premium takeover ad products to simplify the sales process and drive more value for advertisers globally. And specifically for category takeovers, which allow advertisers to own placements for contextually relevant communities, we're testing a more visually impactful format and elevated placement, and we'll be working on more enhancements in this area in the coming quarters. Coming off of our launch in Q4 of Reddit Pro Trends, the number of companies using Reddit Pro grew over 2x from Q4, with healthy engagement around the tool set. Overall, I'm proud of our progress and there's a lot to be excited about. Reddit is a differentiated platform and company, and we believe we are well positioned with our roadmap and our go-to-market strategy to continue making more businesses successful on Reddit. Now I'll turn the call over to Drew.

Thank you, Jen, and good afternoon, everyone. Q1 was a solid start to the year for Reddit with strong results quite similar to each quarter since becoming a public company last year. Building on that thought, Q1 revenues were up 61%, consistent with revenue growth for the prior four quarters, which has averaged about 60%. Similarly, Q1 total adjusted costs were up 19%, consistent with the second half of 2024 where adjusted costs grew about 20%. The financial performance for Q1 was again defined by the five financial strategies that have been consistent over the past several quarters, highlighting the company's solid fundamentals and scalable model. These headlines include: one, differentiated revenue growth. In Q1, we delivered strong growth of 61% despite the tougher comps, well above most peers. Second, scaling profitably. Adjusted EBITDA hit 115 million in Q1 and GAAP net income reached 26 million. That's good progress to be GAAP profitable in our historically slowest seasonal quarter of the year. We're also now GAAP profitable on a trailing 12-month basis. Three, expanding margins. Adjusted EBITDA margin reached 29%, up over 2,500 basis points year-over-year, and the net income margin was 7%, up from a loss last year. Our incremental adjusted EBITDA margin was 70% plus for the fifth consecutive quarter. On the product side, gross margins expanded 190 basis points to 90.5%.

Fourth, generating positive cash flow. Operating cash flow exceeded 100 million for the first quarter, ending at 128 million, our highest ever, and our operating cash flow margin was 33% of revenue. Fifth, minimizing dilution. Total diluted shares fell again sequentially to 206 million in Q1 as we continue to thoughtfully manage our share count. I'll provide a bit more color on these headlines. First, total revenue of 392 million was driven by our advertising revenue, which grew 61% year-over-year to 359 million and continues to scale rapidly across channels, verticals, and geographies. Other revenue, which includes revenue from our data license business, reached 34 million, growing 66% year-over-year. Regionally, revenue grew 57% and 82% year-over-year in the US and international, respectively. International revenue growth accelerated to the fastest growth in over three years as we deepened and expanded our advertising relationships in important markets, including the UK and EMEA. In the quarter, we saw three encouraging revenue growth drivers. First, performance revenue drove more than half the dollar growth in the quarter. Second, our scaled channel, including mid-market and SMB advertisers, was also a growth driver, contributing more than half the dollar growth in the quarter. And third, impressions continues to be the primary driver and consistent with other quarters. But new for this quarter, we also saw a nice tailwind from pricing in the quarter. We believe the gains in pricing reflect the progress from our investments in performance and targeting in the middle and lower funnel. We're delivering more clicks and conversions, which is driving more efficient ad spend and higher returns for our advertisers.

Now moving to costs, as we continue to scale revenue, our investments are focused in two areas: hiring and technology. Hiring is focused on sales and engineering, which is primarily expanding customer coverage on the sales side. And for engineering, we're adding resources in adtech, machine learning, and search. The traction from those investments has been strong and we found a sweet spot where we have both accelerated revenue growth and kept high incremental adjusted EBITDA margins well above our long-term target of 50%. In Q1, total adjusted cost growth was up 1% sequentially and 19% year-over-year, less than a third the rate of revenue growth. Cost of revenue remained efficient with gross margins exceeding 90% for Q1, up 190 basis points year-over-year. Gross margin benefited from incremental revenue growth, and we saw lower contract pricing from our hosting providers from the new contracts we signed late last year. That said, we reinvested some of those savings back across many important areas such as supporting user and ad revenue growth, using more machine learning, scaling search, accelerating machine translation from international markets, and better optimizing our site speed and performance across the world.

OpEx growth was consistent with prior quarters, up 17% as total headcount was up 13% year-over-year. We ended the quarter with slightly more than 2,300 people, up 3% sequentially. G&A headcount was down 5% sequentially, reflecting our strategy to lever back-of-house expenses. I noted on the fourth quarter call that we're focused on scaling profitably and turning differentiated revenue growth, high margins, and low CapEx into meaningful cash flow generation. We delivered on those dimensions in Q1. Free cash flow for Q1 was 127 million, 32% of revenue. Our CapEx remained light, less than 1 million in the quarter. Cash and investments ended at 1.95 billion, up over 110 million sequentially. That's a healthy gain. SBC was 107 million, about 27% of revenue, down substantially versus prior year, which reflected the catch-up SBC expense from the IPO. Net income was 26 million or 14 cents per basic share and 13 cents per diluted share. As we look ahead, we'll share our internal thoughts on revenue and adjusted EBITDA for the second quarter, which is where we have the greatest visibility. In the second quarter 2025, we estimate revenue in the range of 410 million to 430 million, representing 46% to 53% year-over-year revenue growth with a midpoint of about 50%. Adjusted EBITDA in the range of 110 to 130 million, representing approximately 180% to 230% year-over-year growth. So, it's good to see Reddit off to a strong start in 2025. Our financial goal remains to continue to deliver consistent, strong, and differentiated performance. In the end, we'll measure that differentiated financial performance primarily with cash flow. That concludes my comments. Let me turn the call back over to Steve.

Thanks, Drew. We're going to start as usual with taking one of the questions we received from the community. That question was, "The core value proposition of Reddit is its meaningful human answers. How is the Reddit team protecting data quality from fake accounts or bots? It's super easy to make an account right now, which I love, but does that not run a trade-off of more bot accounts?" First, let's start at the top. We fully agree that's the value prop of Reddit: authentic content from humans, and that's what we want to preserve. It has long been an area of work for us, which is preventing the abuse or manipulation of Reddit. And this is a new frontier in that fight, right, with AI and smarter agents. And it is very much top of mind for us. And that work continues. And we agree that some aspects of Reddit, like our historically permissive account creation, will need to evolve, I think, during this time. So very important. Thank you for the question. Okay, back over to Jesse.

Okay, thanks, Ron. I'll take the first one. Look, we ended Q1 with momentum and as of April, we're off to a good start and I think we're well positioned with our roadmap and our go-to-market. I will acknowledge there's a lot of uncertainty in the market, but so far it's mostly business as usual. We're delivering more profitable outcomes for customers with our roadmap work, and that's important in this moment. And we're staying close to our customers to help them through the volatility by sharing insights on consumer trends that inform their strategy based on things that we're seeing on Reddit. One thing I'll note is that in moments like this that are volatile or uncertain, Reddit's a really important resource for users, for people who are just trying to figure out, "Should I buy this now?" or are becoming more considered about their purchases because of the uncertainty. So they come to Reddit to navigate that, and Reddit is an important partner to brands and businesses who are trying to understand how their consumers might be changing their behavior. So I think we're well positioned for moments like this.

Okay. All right. Thanks, Jen. Thanks, Ron, for the question. Users and Google. So, look, we're happy with the start to the year. Q1, we had 108 million dailies, 400 million weeklies, so that's 31% each year-over-year. And we believe we're in great shape over the medium and longer term. Look, ultimately, we drive growth when we make improvements to the product, which is where our focus is. So, things like onboarding, search, machine translation, they all drive growth over the long term. Now, remember, we're an open platform and we want people to find Reddit's content in search. Being open drives awareness and visibility. It can also create variability, and we do expect some bumps along the way from Google because we've already seen a few this year. This is expected in any year, but given that the search ecosystem is under heavy construction, the near term could be more bumpy than usual. To give you an early read on Q2 through the month of April, we're seeing total DAUs growing in the high teens range year-over-year. But the short-term bumps don't affect our long-term strategy or opportunity. We're in control of our own destiny. And I think the question behind the question is, is there long-term risk to Reddit here? And in my view, the answer is no. In fact, I think there's opportunity.

There's no doubt LLMs will evolve search on the internet. We can all see that, and it's awesome. And sometimes people will want the summarized, annotated, sterile answers from AI, and we're even building this ourselves in Reddit Answers. But other times, they want the subjective, authentic, messy, multiple viewpoints that Reddit provides. So, in the same way that Reddit for the last decade has been an alternative to social media—social media being performative and manicured and Reddit being the opposite—Reddit communities and conversation will be an alternative to AI search answers. And furthermore, people want what Reddit has. And when they search, they search for Reddit by name. In the last 90 days, the word "Reddit" was the sixth most searched word on Google between news and Trump, which incidentally also says something about our position in the media landscape. The Google algorithm serves users what they want and what they ask for. And of course, we have had a long and symbiotic relationship with Google. So in summary, expect some bumps and expect us to continue to improve the product and lay the foundation for more consistency in the back half of the year and beyond. And our opportunity remains huge. Community is universal. Our knowledge base is unparalleled. Thanks.

Sure. I can take the first one on pricing. Look, pricing is an outcome of the supply and demand in the market. But the work that we're doing to drive more outcomes—clicks, conversions, app installs—makes each impression more valuable. And we've been consistently delivering more outcomes to our advertisers and more advertisers are using those objectives to get those outcomes. When advertisers can find the outcomes they want at the prices they want, they can continue to spend. And I'd say we're seeing a combination of pricing has been an output of more demand in the marketplace and more value from each impression from that increase in outcomes that we're delivering. We've consistently continued to deliver that, and I think there's more on our roadmap to delivering more value to advertisers. Where we are compared to peers is sometimes hard to see. We hear this from our advertisers, that we are competitive; we're able to deliver market-competitive outcomes for a lot of our advertisers, either on a CPA (cost-per-acquisition) basis, or on a cost-per-click basis, or on a return-on-ad-spend basis. So I do think we've made progress there and are market-competitive for a wide variety of customers. I think there's a balance between that and also scale. So what happens is when they're able to see those outcomes, some of that comes back in their pocket—the return—and some of that comes back in share to us. So like I said, we don't optimize for pricing. It's an output of the marketplace, but we're very...

encouraged by the movement in pricing. I do think the other thing I'll note that's important is that the marketplace, we want it to be consistent in delivering outcomes and outcomes at a certain price for customers. So pricing growth is, you know, fine within a certain level, but we want it to be consistent, I'd say.

Okay. On Answers. So, okay, for context, Answers we built relatively quickly and we put it in the app. So, today Answers lives in the nav bar of the app as its kind of own separate experience. Now, it's up to a million weekly users, which is great. But we want to integrate it with Reddit search and then we want to integrate search more deeply into Reddit. So what does that mean? Integrating into Reddit search means we want one search box, and so that'll be the primary search box. And when you type your query in there, you'll get potentially your Answers answer or, you know, more of a traditional Reddit response depending on what you're searching for.

And then integrating it more deeply into Reddit means I think there will be at least three that I can think of entry points for search. The first is the one we have, right, the search box. But the two other ones I think are really interesting. One would be at the beginning of the user journey: you're a new user opening Reddit for the first time, I think using Answers to see what's in Reddit and learn that Reddit almost certainly has what you're looking for. And then the other is for users coming from external search, helping them get a more summarized or easy-to-parse version of the answer on Reddit. And so I think there's lots of opportunities here.

And how the questions are evolving is itself a really good question. I think it is unlocking a new type of query on the internet, and that is a question with a subjective answer. It's really good. Just things that I've done in the last month: I've asked it to give me a reading guide for an author I'm interested in, and so it just gives a very practical guide there and then also recommends a few related subreddits. I've asked it for an intro to a new hobby and it basically prints out a new starter guide. And I think what's cool about Answers is everything it says, every bullet is a verbatim comment from Reddit. So you can click or tap any of those and get into the Reddit conversation about that thing. So lots to come. Everything I've described, we're working on right now. So we hope to have that in the app this year. And of course there'll be, I'm sure, plenty of iteration, but I think really interesting things we're seeing so far.

Okay, question one: contribution rates. It's a little bit of a complex system here. The part of it that we have been focused on and moving is what we call contribution success. And so that is, whether you're a new or core user, the post that you submit surviving, right, not being removed by a mod, because I think this is one of the most important education moments for new users. So when we talk about post success or post guidance, I can give you a scenario. You're new to Reddit. You've been trained on social media. You're on a community for the first time. You ask a question in a subreddit that for some reason is in violation of its rules, but you don't even know those rules. So you submit that post and then it ends up getting removed. Really bad user experience. User didn't do anything wrong, they're just new. And so that's work for the mod, bad experience for the new user.

So what we're doing now is we catch that post at submit time. So the user hits submit and they get a little pop-up that says, "Hey, you're on a subreddit. This is a community. There are rules. In particular, there's these rules and this post doesn't work. And you can fix it." It turns a bad user experience into an educational moment. And so that sort of thing has been really meaningful. I don't have the number off the top of my head, but moving post success rate, we've been successful in that. And that just makes the whole ecosystem healthier. So we're going to keep pulling this thread because it also reduces the burden on moderators and it just makes moderation more fun.

Okay, data licensing. I think too early to talk about renewals, but as far as I've heard, they love Reddit data. I can tell you, I mean, I see a lot, right? When I use their respective platforms, I see our little mascot all over the place. And so I think I'd say mission accomplished there. And look, I think our early premise was correct, which is any search company, any AI company needs an ongoing supply of new information, especially new relevant information. So our strategy is still the same, which is let's do everything, let's be open and open for business. Let's build our own products on top of our own corpus and do our best to make sure the Reddit information is accessible in as many verticals as possible. So thanks for the questions.

What great questions. All right, let's start with Google. Machine translation, good question. We had the same question ourselves when we started on this, and so we just, I think, did the sensible thing and asked Google, "Hey, because we're basically the first person to do this at scale, is this cool?" They said yes, they've actually been helping us with it. We use Gemini for the translation. So I think it's a really nice—I think this is a great example of the symbiotic relationship. We can put more UGC in the index now in more languages and use that as a channel for new users around the world. So it's totally sanctioned and it's been working great. And then Drew?

Sure. Why can't we invest more? Well, we certainly have the money to do that. I think overall, Tom, thanks for the question. The North Star here is revenue growth twice as fast as costs. So that's how we think about it. You're right that over the last few quarters we certainly have done better than that. We didn't take 70% and draw it up on the dartboard and say this is what we want. That's just where we are currently. We're having a lot of success with the investments, which I think is probably the reason why you're having the question that you're asking.

So we're really investing in hiring and we're investing in technology, right? So a lot of investments in the P&L in machine learning in search and Answers, machine translation across the globe, like all those are investments. They're paying really solid dividends. It's helping accelerate our growth rate. I think those are the ideas that we're thinking about. I think some of the new ideas that are potentially on the plate, we're starting to discuss is really marketing: How do you build community both inside the U.S. and outside the U.S.? Potentially user acquisition. Those are things that we're going back and forth on.

I think we're disciplined and we realize great companies are profitable companies. We want to do that. But I think revenue twice as fast as cost is how we think about the business going forward. We have been doing better than that. If we do come up with the ideas that we think will make sense for our users and for our shareholders, we're more than happy to invest it. We certainly have the cash as well to do it; we have over $1.9 billion in cash. But right now most of the investments that we're looking at are generally a lot cheaper than that; they're in the $10 to $20 million range. And so we're making a lot of them. The good news is the revenue has been growing extremely fast here, and so we've been able to afford those.

We've reached that sweet spot that I talked about in my script where we've been able to accelerate revenues and have strong incremental margins. But I think as you think about our business in the long term, I think revenue growth twice as fast as cost growth is kind of what we're managing to, and we'll see as the ideas come across what we want to invest in.

I'll just add 10 seconds onto that, which is sometimes I like to tease Drew, but I think the discipline around cost growth has probably been our single most important management lever over the last few years. And I think we've gotten good at being able to build what we want to build in a, I think, sustainable way. And so it's something we put a lot of effort into, but it's something we're, I think, proud of.