Reddit, Inc. (RDDT) Earnings Call Transcript & Summary

Okay. I know some folks are still shuffling in, and we're trying to move everybody around between all the various sessions, but in the interest of time, let me get started here. It's my pleasure to welcome the team from Reddit to the conference this year. We've got Steve Huffman, Co-Founder and CEO. Steve and I are going to have a fireside conversation. Steve, thanks for being part of the conference. And this is your first one, I think, as a public company. So welcome.

Yes. So thanks, Eric. Good morning, folks. Thanks for being here. Yes, looking forward to this.

Okay. So let's start big picture. It's been 6 months since the IPO. When you look back over those 6 months, how have the first 2 quarters been? And have there been any changes in the priorities you have for the business since going public?

So in terms of the first 2 quarters, we're very happy. We came out of the gate strong, pretty much did everything we wanted to do. Our first goal of going public was actually just to be public. This company has been around a while, and so for employees, for investors, for our users, our users as possible owners, which a public company provides, is getting out was important to us. And so we're able to do that, our users being investors, we like the way things traded. And then just from a business point of view, business is good. So we grew significantly in Q1 and Q2. Last quarter, 50% -- over 50% of both users and revenue. So I couldn't ask, honestly, for much more. And now with the lockup behind us, which was last month, I think we can say like the IPO is done. Now we're a public company, and we just get to work. So we feel great.

Okay. Perfect. Maybe switching to usage and traffic and consumer behavior. The platform has, in many ways, been at the forefront of this recent AI wave. Starting with user growth and engagement, how has the rise of the AI, both your own work and third-party platforms, benefited Reddit from a user and engagement standpoint?

Sure. So like AI is not a new thing. And so if I were to look over the history of Reddit, what we used to refer to as machine learning, but the way it manifests in the product is relevance for our users, helping users find communities that are relevant to them, making our home feed more and more engaging. We've really clicked that on in earnest about 1.5 years ago. And so that's one of the things that's really been driving user growth, is we've gotten much, much better about connecting users with their home on Reddit, expanding their interest on Reddit. And so that's maybe what we call old-school ML, at least in these forums. That's been working very, very well. And then, of course, today, now we have large language models, which makes Reddit better in all sorts of ways. One of the big ones that will probably come up a couple of times today is using LLMs to translate our content into other languages. So now we can do human quality translation of the Reddit Corpus. So that's a really important part of how we grow outside of the U.S., outside of English. LLMs help make moderation better, right? Now, you can detect things with computers like bullying or rudeness or this or that, that formerly required humans to see and adjudicate. So we make Reddit safer. And then as we look to the future, for us, there's a lot of little things, but the big thing is search. So we'll probably talk about search a lot today, I imagine. But in this case, I'm referring to on-platform search, so users running searches on Reddit. We see about 1 billion queries a month there. So making that product work really well, I think there's a tremendous amount of opportunity there, both on the consumer side, our users run searches, they're trying to find stuff on Reddit, that's like the mission #1. And of course, down the road, monetization. And so AI and related technologies will be really helpful there.

Okay. So you've seen very strong user growth if we look backwards first towards -- looking back over the last 12 to 18 months. I want to know if we can unpack this a couple of different ways. Number one, maybe for those folks who aren't aware, what were some of the driving force behind that strong user growth? How do you see those types of levers and growth evolving? And what's the challenge with balancing the core of what Reddit is against the dynamic of also wanting to drive new users and continue to improve the user funnel over time as well?

Sure. So the things that have been working very well for us the last year, I touched on one of them, using ML to expand people's interest on Reddit. So if you talked to me 2 years ago, 5 years ago, I'd probably say our #1 challenge is we have a home on Reddit for everybody. Like your interest, your passions, whatever you're into or going through are on Reddit, but we weren't successful consistently in connecting users with their home on Reddit. So we've gotten much, much better at that over the last year, and so now all those new users that we see, whether it's through word of mouth or external search like Google, the new user retention has gotten much better. So that's one of the big ones. Along the way, there's been a million small but important things we've done. We've made the app easier to use, faster, easier on the eyes, added some nice quality of life features, generally making Reddit more accessible. That's working. That's very exciting. It's the most fun product work we do, and it's working. One of the other big changes is we made the web platform -- we rebuilt it from the ground up, and it's 2 to 5x faster than the web platform that it replaced. This was also landed in about May of last year. That really improved ranking in external search. And so I'm sure you've seen Reddit in Google. If you're using Google, you're probably ending up on Reddit. Web performance is a big driver there. So that helps at the top of the funnel, and then the ML and quality of life stuff helped with the conversion, and so that's been driving growth over the last year. So the kind of core of our business, which has logged-in users in our app, that was up 30% last quarter. And that's the highest rate it's been in years. It feels great to see our work really translating into that sort of growth.

Maybe just sticking with this theme, and another part of it would be broadening it out over time. So you're trying to bring awareness of the platform, new users in, while trying to maintain the core of what Reddit is. Talk just a little bit more about striking that balance.

Sure. So the core of Reddit is communities. And I've been hearing this -- so Reddit's been around 19 years. Since the day we turned on commenting on Reddit, which was August 2005, users have been worried that Reddit's too big, like our best days behind us. And what we've seen is Reddit's just people. Reddit has near-universal appeal to people, and we're now at this point where, look, if you're between the ages of, let's call it, 17 and 70, men, women, nerds, normies, whatever it is, Reddit works for you. And so we've hit this point where I can confidently say Reddit can work for anybody without compromising Reddit itself. I think there's this fear, oh, it's going to get too big, it's going to lose its soul, it's going to be uncool. But one of our product philosophies is that no matter how big Reddit is, it should always feel small. And the community structure of Reddit gives us that. So it's not one-size-fits-all for everybody. On Reddit, you're in a community, we call them subreddits, that's super tailored. So it might be for the TV show you're watching or the video game you're playing or the -- might be a parenting community to give you advice there, or whatever you're going through, there's -- Reddit has got many, many small areas. And so it creates this intimate dynamic that -- and we've been able to basically make it work for just about everybody. And so that's the thing that, if you'd asked me 10 years ago, maybe I was unsure if we'd be able to do that. But now I can say confidently, we've done that. And so now we just grow.

Okay. Understood. Maybe turning to international. How do you frame the opportunity for Reddit to expand in international markets? What scale do you think you can get to over time? And what are some of the key investments that have to be made to capitalize on that opportunity?

Sure. So to give you a sense of scale, today, we're about -- last quarter, we were about 90 million users every day, 90 million DAU, roughly half in the U.S. and half outside the U.S. Outside the U.S. -- so 50-50. If you look at our peers in this space, they range from 80% to 95% outside the U.S. So just kind of like -- almost like a law of nature, the way these Internet platforms go. We would expect to grow up to that range. And so for us, the question is just over what time period. Reddit is different than social media in that you're joining community, and so it's a more intentional experience. But over our history, we've been a slower grower than social media, because it's not -- right, where social media works, it's like I invite my friends, they invite their friends, you get this really, really powerful network effect. Reddit's more intentional. One of the things I'm most excited about though is one of the biggest barriers to us growing internationally is language, right? It's mostly English today. Not entirely, but mostly. With large language models, we can translate our Corpus into other languages at human quality. So we've done French in the first half of this year. Results are working really, really well. And so now we've started to do Spanish. There's 1 billion Spanish speakers in the world. Portuguese gives us a couple of big countries. And German, where we have a nice foundation. And so we'll keep adding on languages as we go. But this -- it's rare that we get such a kind of tactical improvement to Reddit as we do with the translation. So we'll get to that scale. Like I said, we're one of the few platforms that has universal appeal. Everybody has hobbies and interests. Everybody lives in an area that either has sports teams or local interests like cities or countries or whatever. Everybody is making some decision. What should I watch? What should I wear? What car should I buy? I need help with my kids, or I'm going through this relationship, this or that. And so Reddit's universal appeal, combined with the translation, means we can be as big as anybody.

Okay. So we're going to switch gears a bit now. Ahead of this discussion, the Reddit team solicited questions from its community/Reddit, or RDDT, the ticker, the stock's sticker. There's 2 I'm going to ask you that were submitted in the community. So the first is a user question from a Redditor and shareholder. It feels like advertisers could target better based on post subject matter. How do you think about a more dynamic approach to advertising in relation to this? Because it feels like you're missing low-hanging fruit still. Okay. That's question one.

First, it really warms my heart to hear somebody describe themselves as a Redditor and shareholder. That was the point of going public. Our users feel a deep sense of ownership over Reddit. They have for a long time. So they being able to be actual owners is literally a dream come true for us. Okay. So the question is, can we target more on context? And so broadly on Reddit, there's 2 reasons you will see an ad. That advertiser is either targeting you based on your broad interest on Reddit, right? So you go to the skiing subreddit, you'll start seeing outdoors ads, for example. Sometimes the connection isn't as obvious, right? The advertiser says, "Hey, we want to target outdoors people, but we're selling energy drinks or whatever." So it may not be super obvious to you, the consumer, but the advertiser's basically targeting your interest that you've expressed on Reddit. The other is the context of the content you're looking at. So there's many, many pages on Reddit, we call them conversation pages, where people are talking about a very specific product, a brand, a company. And so if you're on that page, you may see an ad targeted to that specific thing. I think that's what the user is asking about, but you may see an ad targeted to you as a person. Both are really important. On the latter, of course, that gets better and better as we grow the number of advertisers, increase advertiser density and make sure we have a customer that fits perfectly. But that won't always be the ad you see. Now one thing we don't do is target based on your personal and private information, your Internet browsing habits. And so this is one of the trends that I think is really important online right now, is making advertising more transparent and predictable and explainable as opposed to what I think we've been through the last 10 years where ads are, for lack of a better word, creepy. That's not us.

Okay. So we got a second one. Google said they wanted to enhance search results by incorporating more Reddit content, responding to users increasing reliance on Reddit for helpful information. Is this initiative now "complete" or how far along are we in this process?

Look, so Google is always evolving. In this AI era, they're doing a bunch of new stuff. I don't think they'll ever be done. But yes, they're testing new stuff, summaries and this and that. I can tell you in the short term -- well, it's not really short term. For a long time, we've had a symbiotic relationship with Google. We have a lot of content in their index, and they help users find content on Reddit. Now the advantage that Reddit has is consumers are specifically seeking out Reddit content. So if you were to go to Google Trends, for 2024 in the U.S., Reddit -- the word Reddit, is the sixth most searched for word on Google, #5 is news, I think #8 is maps. And so Reddit is something that users or consumers are specifically looking for. So whether they type it into the search box on Google or they type it into their address bar to come directly to Reddit, Reddit has unique content and experiences that consumers want. And so that makes us resilient, and it means that I think we and Google can collaborate on how do we create the best experience for consumers, which is what we do. And so we've had a long relationship with them. Their product will evolve. Ours will evolve. But what makes Reddit defensible and resilient and differentiates us from, I think, some other publishers on the Internet is we have totally unique content and experiences that users seek out specifically.

Okay. All right. So let me pivot back to some of the topics I had. Just wanted to talk next about data licensing. How do you see the opportunity for data licensing of Reddit data and content to AI platforms? And how have you positioned the platform, whether it be offensively or defensively, against this opportunity?

Sure. So Reddit's Corpus, right, nearly 2 decades of human conversation, is unique and valuable and colloquial. So it's real people talking about real things the way that humans talk about it. So this is very special. And it's really valuable to -- for AI training. And so many of the big foundation models used Reddit's content to train. And so what we've done over the last 1.5 years is start to create intentional relationships with these companies so they can have ongoing access to Reddit Corpus to continue training. So we've done a couple of major deals, bigger ones with Google, with OpenAI. We're in talks with others. Look, the whole, I think, Internet benefits from large language models. I spoke to you earlier about the ways that our company benefits from this technology, so we think it's important, and we think it's important broadly that Reddit's content be accessible for these things. But we want to make sure if our -- if Reddit content is used for commercial purposes, that there's a commercial agreement. Now we also, on the other end of the spectrum, allow Reddit's content to be used for noncommercial purposes. So we make it accessible to, for example, researchers or nonprofits, because we like to advance the state of the art, we like to help people on the Internet grow and do interesting things. And we have a long history of doing that. One of the things we did over the last couple of months is we released our public content policy, which basically says -- documents the ways in which Reddit's content is open and what's not open. So personal information, behavioral information, all of that is not included in this. But content that's on the public Internet, we can license in commercial terms, we can license in noncommercial terms. And we feel this broadly benefits the ecosystem, and it's also a nice growing business for us on the data licensing side.

Okay. I next want to turn to a topic we talked a lot about around the time of the IPO process. Why don't you walk us through your vision over the long term for the Developer Platform on Reddit, what you're trying to build and how early testing is going with developers so far?

Sure. So the interesting thing about Reddit is I've described our subreddits today as communities around interests and passions and maybe geography and things like that, but our users have created subreddits to do a lot more than that. So maybe you've heard of the AMA, the Ask Me Anything, the big kind of public interview that Reddit's pioneered, right? We've had presidents do that. We've had -- vacuum cleaner salesmen was one of the most popular ones over the years. That whole format, it's basically a product. It's almost a company in its own right, was created by users on top of Reddit. Or we've got another subreddit called Photoshop Request, where users pay $5 or $10 to alter a photograph. Sometimes it's something pedestrian, like "Can you crop my ex out of this picture?" Sometimes it's more profound, "My parent died, passed away. This is the last picture of them. Can you make it pretty? Can you make it nicer?" If you go to Photoshop Request today, you'll see examples of both of those things. But that's like a little business, a little service that users have created on top of Reddit. So the Developer Platform that we're building, we've been working on this for 2 years, basically gives users more tools to expand what Reddit is and what it can be used for. I'll give you a couple of examples. There's also things like games. So we -- Reddit, Inc., we've built a game that we've run in the last couple of years called Place, where users collaborate and create an image one pixel at a time together. Last summer was the last time we ran it. We had 9 million people play that game within the course of a week, and on a single shared canvas. So if you want to see the power of Reddit, go to YouTube and search for a Reddit Place, and see this work of art that users created. So that's an example of a game. So Developer Platform, we're trying to give the tools to our users to expand Reddit. I know that was a long intro, but that's the idea. People are creative and they'll do really creative things if we give them the tools. Now on top of that, we'll build in monetization primitives so that users can charge for things, charge each other for things, maybe start little businesses on Reddit. So I'd say we're still in early days here. but we've got a few hundred developers off our waitlist now experimenting with this platform. We're building the payment infrastructure as we speak, and we'd love to see kind of end-to-end proof of concept of that on the order of this year, more or less, connecting the dots there, and then grow from there.

Okay. So you've recently done some content licensing deals with the sports leagues, the NFL, the NBA. Maybe talk a little bit broadly about your video content strategy. How does it play a bigger role on Reddit going forward, both for the user and potentially for advertisers as well?

So the way to think about Reddit is it's not a video platform or not a text platform. And even though we pioneered the meme, it's not a meme platform. It's a platform for community and conversation. So on Reddit, you talk about pieces of content, be that text or images or video. Video is, across the Internet, one of the fastest-growing content types, right? Because the phones and computers can support it, the bandwidth supports it. So video, like everywhere, is growing on Reddit. But what's really important on Reddit is not that we'd be a video platform, it's that we allow our communities to have videos so that they can kind of organize around it and talk on it. Yes, we did partnerships with many of the major leagues, NFL, NBA, MLB, NASCAR, to make sure we have licensed, high-quality content, specifically video, on our platform, so our users can discuss it. And so we feel great about that. But I'll just point out that text, people telling stories, and on Reddit, telling stories they've never told before, is actually the most popular content type on Reddit and continues to grow. And on the Internet, audio is one of the fastest-growing content types. And so our strategy at Reddit is to be content type agnostic. Whether it's text, images, audio, video, we want it all on Reddit, we want it all to work well so that our users can organize around it and discuss it however they like.

Okay. I want to turn next to content moderators. How do you view the current health of the content moderator community and Reddit's relationships with mods and what tools or products do you continue to build and improve upon to put in the hands of moderators?

Sure. So when we say moderators at Reddit, we are referring specifically to users who create communities on Reddit. They're not paid employees. So when other companies say moderators, they're often referring to paid employees on their safety team. For us, moderators are users who create communities and are stewards of the culture of those communities. So look, Reddit doesn't exist -- Reddit is communities, and the communities are created by users who then become moderators. And so our relationship with them is essential. So there's a couple of things that we really focus on with the moderators. Giving them good tooling. So we tried that the tooling that we use internally in our safety team, our goal is to expose everything that we have also to moderators. Because every community on Reddit has rules, not just unwritten rules, but written rules, that are created by the community and enforced by the community. For example, the most common user-created rule is some form of be civil or be nice, which is a really important rule, but giving users the ability to enforce their rules at scale is really important. So mod tools are super important. We also spend a lot of time with moderators, both on Zoom calls, in-person doing meet-ups. We have a whole program at Reddit called Adopt-an-Admin. So it's where employees, myself included, will actually moderate communities on Reddit alongside our user moderators to just make sure we have native understanding of the challenges they face and continue to deepen those relationships. And with the Developer Platform and user economy, again, we're trying to give the moderators more tools so they can both do more things on Reddit and eventually build kind of subreddits that are maybe -- allow them to even start little businesses on Reddit, capture some of the value that they're helping to create on Reddit. So there's a lot that goes into it. Moderators are our most important constituency within our user base.

Okay. So we've talked a lot about the long-term opportunities, a lot of what you're trying to build on the product and platform side. Let's pull it all together. How do you think about aligning capital investments? When you're think about what sort of goals and milestones, you want all that innovation to sort of line up against in terms of striking a balance between applying capital against the long-term goals and the long-term opportunities.

So look, the mission of Reddit is to create community, belonging and empowerment for everyone in the world. The majority of our investment, we think of it, high level, as like a 70-20-10 model. So that 70% is the core of Reddit. That's basically all the stuff we've talked about today, making Reddit faster, safer, easier to use. Those are the things that grow our core user base. The machine translation is part of that, and then our core ads business is part of that. And again, there, the road map is long, but straightforward: improving targeting, improving measurement, improving performance, CAPI, things like that. That's all in the core. That's the majority of our investment. One of the most important phrases in our mission is that last phrase: everyone in the world. We've proven that Reddit can work for anybody, and so now we need to actually make sure it's everybody. I think every user on the Internet can be a Reddit user. That's the core of our strategy. Our core product works, we need to just grow it. Now as we get into the 20% and the 10%, we get into the bets. So the things we've talked about today, user economy, Developer Platform, those are our most bet-like bets. Straddling, I think, kind of both the bets and the core is search. It's both part of the core consumer experience, but it also represents a big opportunity for our future. So I'd say when we look at capital allocation, it's nothing crazy, right? I think everything fits in our road map and has a very clear mapping to a part of our mission. And for us, it's work. The good news is our work is working. Our team is in place. We're executing better than we ever have in Reddit's history. It's a really fun time at Reddit because we can ship what we want, we ship it on time, we like the quality, and it works. And so of course, not everything will work, especially on the bets area over the long term, but I like the growth that we're seeing, and I really like the direction that we're heading.

Okay. We've only got a few minutes left. Maybe one last topic I want to hit. We always try to end on sort of a forward-looking sort of question, and we're here at a technology conference. Looking ahead over the next 12, 18 months, what are the key priorities and milestones that you'd like Reddit to achieve both as a platform, as a company? Are there any emerging themes that we haven't talked about that you think investors should be keeping in mind with respect to the company?

So one of the funny things is though Reddit, to me, feels still like a start-up, and that's the vibe at the company is we definitely have that kind of new company start-up energy, we've been doing this for 19 years. We're actually one of the oldest platforms. One of the trends that we're seeing is a lot of the things that we believed in near religiously are now becoming important trends. So we believe in organizing people around communities and interests as opposed to social media, which organizes around what I call the Fs: friends, family, followers, famous people. Those aren't Reddit concepts. We organize around communities and interests. But there's a secular trend now, I think, from the Fs towards things like community. And so that's something we've believed in for a long time, but we're seeing that start to really take hold. On ad targeting, moving away from PII, like personal information, Internet browsing habits, and moving back towards context and back towards interests. That's a trend that we see advertisers want and that we provide. And so that trend is really important to us. And of course, we've talked a lot about LLMs and how that makes the whole Internet better, but LLMs are very good at text and words, and Reddit is mostly text and words. And so there's, I think, a lot of opportunity there. In terms of milestones, you're catching me in a little bit of a transition period. For years, the milestones that we've been chasing at Reddit are $1 billion in revenue and 100 million DAU, and we're on the threshold of both. So we're going to have to raise the bar here, I don't know if it's going to be 2x or 10x. We'll get to both eventually. But we're actually, I think, right on the verge of things we've been chasing for like 5 years. And so that happens to be, in the short term, very exciting for us.

Okay. Well, first, Steve, thanks for the opportunity to have the conversation. And second, please join me in thanking Reddit for being part of the conference this year.

Thanks, Eric. Thank you, everybody.