Good afternoon. My name is Julian, and I will be your conference operator today. I would like to welcome everyone to Reddit's Q1 2024 Earnings Call. All lines have been muted to minimize background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to Jesse Rose, Head of Investor Relations. You may now begin.

Great. Thanks, Julian. Good afternoon, everyone. Welcome to Reddit's First Quarter 2024 Earnings Conference Call. Joining me today to share our results are Steve Huffman, Reddit's Co-Founder and CEO; Jen Wong, Reddit's COO; and Drew Vollero, Reddit's CFO. Their remarks will be followed by a Q&A session. We issued our first quarter letter to shareholders earlier today and it is now available on our Investor Relations website and our Investor Relations subreddit r/RDDT. Before we get started, I'd like to remind you that our remarks today will include forward-looking statements, including those regarding our future plans, objectives, expected performance, and in particular, our guidance for the next quarter. Actual results may vary materially from today's statements. Information concerning risks, uncertainties and other factors that could cause these results to differ is included in our SEC filings, including those stated in the Risk Factors section of our filings with the SEC. These forward-looking statements represent our outlook only as of the date of this call. We undertake no obligation to revise or update any forward-looking statements. Additionally, the matters we will discuss today will include both GAAP and non-GAAP financial measures. Reconciliation of any non-GAAP financial measures to the most directly comparable GAAP measures is set forth in our letter to shareholders. Non-GAAP financial measures should be considered in addition to, not as a substitute for GAAP measures. Finally, today's conference call is being recorded and webcasted. Now I'll turn the call over to Steve.

Thanks, Jesse. Hi, everyone. I'm Steve, Reddit's Co-Founder and CEO, and I'll be kicking things off for us today. Welcome to our first earnings call as a public company. I'd like to start off by saying thank you for spending a bit of your time with us today. We believe that great companies are built in the public markets, and we're proud to have made the transition this quarter. Our IPO was an important moment for the company. I want to express my gratitude to our employees, our users, and investors who all made it possible. I also want to welcome our new investors, particularly our new user investors. For users to be able to own a piece of Reddit has long been a dream of mine. Starting today and going forward, we aim to include the community in this process. Our current plan is to answer a few questions on this call and then address a few more on the RDDT subreddit after this call. This process will likely evolve as we move forward. I'm thankful for the research analysts who have been with us on this journey, assisting us as we conducted not just one, but eight practice earnings calls over the last two years. We're happy with our progress this quarter. More people are visiting Reddit than ever before. Users grew 37% year-over-year in the first quarter. We averaged over 80 million users daily and 300 million users weekly. We witnessed growth across logged-in, logged-out, both within the U.S. and abroad. The most reliable way for us to grow Reddit is to make Reddit better. As such, our primary focus this year is to continue enhancing Reddit to make it faster, easier to use, and safer. Our new web platform, Shreddit, is now accessible to 100% of users and is more than twice as fast as the platform it replaces; feed equals retention, retention equals growth. We recently updated our native apps with instant comment loading; comments and conversations are at the heart of Reddit, and we made it faster and easier for users to join in. Our investments in machine learning and AI will continue to improve relevance, engagement, and moderation. We have been utilizing machine learning to enhance our ability to help users find communities they'll love, which in turn increases engagement across the platform. For moderation, we have trained our own large language models that have significantly reduced the time required for communities to enforce their own rules. We're currently testing this in a couple of communities and we'll be rolling it out more broadly soon. To grow outside the U.S., we're utilizing machine translation to unlock our primarily English corpus. We believe that this will not only drive near-term growth but over time, will also allow users from all over the world to connect regardless of the languages they speak. Now turning to some of our emerging areas as we think about the next generation of Reddit. A few of our initiatives include the user economy, developer platform, and search. The user economy refers to a family of features that will allow users to spend and earn money on Reddit. A revamped version of user awards and Reddit Gold, which is our virtual currency that facilitates both of these things, will be launching soon. Our developer platform will enable third-party developers to push the boundaries of what subreddits can be, and we're excited by the early progress here. For instance, wallstreetbets has livestock tickers for trading stocks, and several sports subreddits have constructed live scoreboards to track games. Traditionally, the value of Reddit for users has been in conversations about current topics, but with enhancements to on-platform search, we can unlock the immense value in past content, including all answers, reviews, and advice we've amassed over the years. It's an exhilarating time: the tech landscape is changing, and Reddit is becoming increasingly important and valuable. Reddit is one of the largest platforms for authentic connection and conversation online, and more people are discovering and appreciating this. We believe Reddit is more critical now than ever before, not only as an alternative to traditional social media but as we navigate the AI era where the value of our corpus continues to expand. The paradox I observe is that as more content on the Internet is generated by machines, there's an increasing premium on content created by real people. We have nearly two decades of authentic conversations, unique perspectives, earnest advice, and honest reviews addressing nearly every imaginable question. There are multiple avenues through which Reddit benefits from the evolving ecosystem, and we are still in the early stages of exploring use cases for Reddit's data. This includes both internal improvements to enhance the platform experience for users and external partnerships. We remain committed to the open Internet, but we must carefully consider where Reddit data ends up and what it's used for. We aim to strike a balance between being open and fair while ensuring respect for our users. In summary, this was a strong start to the year for Reddit, and we are executing better than ever. We see abundant opportunities ahead and could not be more thrilled about our future. Thanks again for taking the time to join us today. Now, I'll hand it over to Jen.

Thanks, Steve. Hello, everyone. Our IPO was a significant milestone for Reddit and our communities, and I'm thankful to all who contributed to making it happen. I am very enthusiastic about our future as a public company. Reddit is just starting its monetization journey, but I am proud of our achievements in advertising and emerging sectors like data licensing and the user economy. We aim to lead in contextual and interstitial advertising. Daily, we are focused on improving our advertiser solutions and attracting new advertisers. In the first quarter, we successfully scaled and diversified our business, expanded partnerships, and implemented our ads platform roadmap. Total revenue growth accelerated in the first quarter, rising by 48% year-over-year to $243 million, the fastest growth since Q1 2022. Our strategies are gaining traction alongside a more favorable ad market compared to last year, and we made progress in our developing data licensing business. Total U.S. revenue grew by 53%, while international revenue increased by 30% year-over-year. International revenue accounted for 18% of total revenue in Q1. Advertising revenue grew by 39% year-over-year to $223 million, marking the third consecutive quarter of accelerating year-over-year growth. Other revenue skyrocketed over 450% year-over-year to $20 million, driven primarily by new data licensing agreements secured in the first quarter. Let me first discuss our ad revenue drivers. Our investments have enhanced performance for advertisers. Click volumes doubled, and we improved click-through rates by over 40% year-over-year during the quarter. Our comprehensive suite of solutions across the marketing funnel positions us well for a wide range of advertisers. Our performance advertising sector, which drives traffic and conversions, accounted for over half of our growth in the quarter. Ad revenue growth was mainly due to increased impressions delivered, even with a year-over-year decline in pricing. We saw revenue growth across all managed channels. Our scale business, mid-market, and SMB sectors grew faster than total revenue. This area is a priority investment for us and aligns with our expectations. Our large customer service channel, which makes up just over 60% of total revenue, experienced widespread growth. In terms of vertical performance, the tech vertical returned to growth, especially in the finance, pharma, and CPG categories, each growing over 50% year-over-year. I am satisfied with our efforts to diversify revenue. In Q1, no vertical exceeded 20% of our ad revenue. Regarding geography, international revenue climbed 30% year-over-year to $43 million in the first quarter, a significant increase from last year’s 21% growth in Q4. This growth was driven by strength among large and mid-market customers in EMEA. We have also made substantial progress against our ad tech roadmap. Our focus is on a few key areas: improving usability for advertisers and productivity for our sales team, enhancing the overall performance of our ad solutions, and providing unique Reddit solutions and creative materials that can't be found elsewhere. To improve usability for advertisers, we are working on reducing campaign setup time for self-serve and small businesses. We are utilizing advancements in AI to streamline the setup process. We introduced an AI-driven headline generator for Simple Create, our self-serve creation flow aimed at small businesses, and we are seeing promising early activation and adoption rates. Next, to enhance performance and measurability of our ad solutions, we have made progress in developing our conversion API ecosystem, allowing us to capture more signals and improve our performance models. We launched our [indiscernible] last year and have recently announced integrations with [indiscernible], a leading customer data platform, and Google Tag Manager. We keep innovating our ad products to connect our advertisers with our communities more effectively. We introduced free formats, which offer advertisers a creative way to engage with users. Testing has shown that these formats yield a significantly higher click-through rate compared to other ad types, and we have seen double the number of campaigns run daily since the launch. Additionally, we rolled out Reddit Pro, a free suite of AI-powered insights and tools that assists businesses in building and expanding a significant organic presence on Reddit. We are currently in beta with over 1,000 businesses, including prominent names like Taco Bell, Wendy's, the NFL, the Wall Street Journal, and various SMBs. We are also laying the groundwork for the future of shopping on Reddit, as users often turn to our platform during their purchasing journey for rich, human-driven product and review discussions. Last year, we launched our first shopping ads and catalog ingest capabilities and are now testing dynamic product ads, with encouraging early results. Now, I'll update you on our data licensing business. Our data licensing efforts are evolving as the market is still in its early stages. In the first quarter, we signed licensing agreements with multiple companies in the social listening space and with Google, as previously announced. The financial impact of these agreements is reflected in our Q1 financials as other revenue, as well as in our revenue guidance for Q2, which Drew will elaborate on shortly. Over time, we will strategically pursue data licensing partnerships and explore other internal uses for Reddit data to enhance our platform and user experience. Overall, we delivered solid results in our first quarter as a public company and remain focused on executing our mission. I hope you share our excitement about Reddit's future and look forward to the journey ahead. Now I'll turn the call over to Drew.

Thank you, Jen, and good afternoon, everyone. As we often say, Reddit has a powerful financial model that's straightforward, advantaged, and scalable. The strength of our financial model was evident in the first quarter as we reached an important inflection point. In the first quarter, we achieved adjusted EBITDA profitability, marking a significant contrast to a year ago and a positive start to 2024. The driving force behind that success was revenue growing over five times as fast as total adjusted costs. In the quarter, revenues grew 48% year-over-year, while total adjusted costs grew 9% year-over-year. To summarize the highlights, average user quantity reached $82.7 million, up 37% year-over-year, driven by fundamental product changes that accelerated speed, onboarding, simplicity, and consumer connection to more relevant content. Domestic users accounted for 50% of total users this quarter, with around 48% of the user base being logged-in users. Sequentially, we added 9.6 million users in the quarter, marking our most significant increase in three years, with over 60% of these users logging out. Revenues were $243 million, reflecting a 48% year-over-year increase, driven by robust growth in the ad business and incremental data licensing revenue from new sizeable and smaller deals. Other revenue reached $20 million in the quarter, a staggering increase of 454% from last year. International revenues rose to $43 million, which is a 30% increase year-over-year, and represented 18% of total revenue. Reddit's business model possesses a couple of distinct advantages that were particularly apparent this quarter in two areas. First, our gross margins rest at best-in-class levels, with gross margins at 88.6% in the first quarter—an increase of 500 basis points from last year—driven by high-margin revenue gains, lower hosting contract prices, tax efficiencies, and the accretive margin tailwind from our new data licensing deals. Second, our capital expenditure remains very light. CapEx was approximately $3 million in the first quarter, equating to just over 1% of revenue. This low CapEx has contributed to our positive free cash flow, which stood at $29 million in the quarter. As we scaled our business, we observed excellent operating leverage in two areas: firstly, in operating expenses and headcount, with non-GAAP operating expenses increasing by 10% year-over-year as we continue to hire selectively in strategic areas such as sales, ad tech, and machine learning. The total ending headcount for Q1 increased by 2% sequentially and 4% year-over-year. Secondly, we leveraged the incremental sales effectively. In Q1, revenue rose approximately $79 million year-over-year, while adjusted EBITDA increased by about $60 million year-over-year—implying that over $0.75 of the incremental sales dollar has translated to the bottom line. These highly profitable incremental revenue dollars significantly aided in bringing positive free cash flow and transitioning our business into adjusted EBITDA profitability. Despite this, we did experience a GAAP net loss of $575 million in Q1, largely due to stock-based compensation-related taxes precipitated by the IPO. Stock-based compensation, including related taxes for the quarter, amounted to $595 million, up from $13 million a year ago, driven primarily by one-time expenses related to the vesting of restricted stock units linked to our IPO. On a non-GAAP basis, adjusted EBITDA was approximately $10 million in the first quarter, roughly $60 million better than the first quarter of the prior year. This marks our first Q1 with positive adjusted EBITDA, a noteworthy achievement given that Q1 is typically the slowest quarter in digital advertising. Positive adjusted EBITDA has been a strong driver for cash flow during the quarter, with cash from operating activities amounting to $32 million in the first quarter, driven by improved performance and working capital in DSO and DPO. A couple of additional financial notes on cash and shares: at the end of Q1, cash and marketable securities totaled $1.67 billion, including all IPO proceeds. Dilution from employee grants was about 0.6% of our fully diluted shares outstanding, as we issued around 1.2 million shares to employees in Q1. We view stock as an expense of our business and aim to manage dilution to align with peers within a low single-digit percentage range over time. Looking ahead, we will share our internal projections on revenue and adjusted EBITDA for Q2, where we have the greatest visibility. In the second quarter of 2024, we project revenue to range from $240 million to $255 million, with adjusted EBITDA between $0 million and $15 million. In summary, Q1 was a strong start to the year, characterized by accelerated user and revenue growth against modest cost growth, greatly contributing to margin expansion, adjusted EBITDA profitability, and positive free cash flow. Now let me turn the call back over to Steve.

Thanks, Drew. Thanks, Jen. Okay. We're going to take a couple of questions from the community quickly, and then we'll conclude the call. The first question from the community: how are your initiatives progressing regarding licensing data for AI data models and expanding beyond Google? The short answer is yes. However, we are being discerning and selective with our partners, especially in larger scale search and training deals. We need to be very mindful of where our data is used and what it is used for. While I cannot discuss details of any ongoing negotiations, I will say the landscape is split; there are a few large players and many more smaller opportunities, and we are exploring both avenues. That said, not all players in the ecosystem are suitable fits for Reddit. We're in the early days of this endeavor. Overall, we've seen increased interest in Reddit data for various applications, and I look forward to observing how this landscape evolves.

Okay. Second question, Jen, I think this one is for you. Can you provide specifics about the types of advertising primarily responsible for the significant increase in earnings? Is that largely due to increased sales of existing types of advertising or new types of advertising on the platform?

Sure, thanks for the question. We have actually seen growth in both supply and demand. Let me start with demand. Across the funnel, we've seen growth in various stages: the brand upper funnel, mid-funnel for traffic driving, and at the bottom, which is focused on conversions. Brand advertising had a strong quarter—certainly relative to Q1 2022, which was our last exceptionally strong Brand quarter. It was wonderful to see Brand returning. Our mid-funnel is also performing exceptionally well thanks to improvements we've made in click-through rates, which are up 40% year-over-year, and we've doubled click volumes, providing much greater efficiency for advertisers. We've also seen broad-based strength across managed channels, particularly in mid-market and our larger customer channels in North America and Europe. Lastly, we noted strong performance in key sectors such as finance, pharma, CPG, and tech, each returning to healthy growth. On the supply side, while developing new ad placements offers potential, our current inventory primarily consists of two core ad types: ads in the feed and ads in conversational comment threads. We observed strong growth in conversation inventory due to increased time spent reading comments and deeper engagement, complemented by some ad platform enhancements. Thus, both supply and demand have been integral drivers for our business.

Great. Thanks, Jen. Julian, let's open up the line for questions from individuals online.

Certainly. Our first question will come from Ron Josey from Citi. Please proceed. Your line is open.

Great. Thanks for the question. Steve, Jen, Drew, great quarter. I wanted to ask, Steve, about global DAQ growing by $9.6 million sequentially. Can you discuss the drivers here and the sustainability? I know you mentioned SHRED-IT performance, with improved search driving growth, and the home feed ML. Any insights on sustainability of user growth would be helpful. Also, Jen and Drew, you noted that the ad market is healthy, but I would love to hear your thoughts as we approach the second half of the year, especially with tougher comps coming up. Thank you.

Sure, sure. Thanks. We're pleased with the user growth results. The main driver of growth is the improvement in our product quality. Yes, we mentioned SHRED-IT performance, both of which are critical for user retention. Additionally, web performance improvements have driven increased traffic via Google, significantly boosting logged-out users. However, logged-in users, which form the core of our business and the backbone of our inventory, have also increased by 27% year-over-year. This growth is primarily due to enhanced product quality. Our sign-up process has become more efficient, onboarding has improved, and our home feed now better serves user interests during their first session on Reddit. We believe it's essential that we continue enhancing product performance and quality, which is leading to this retention and growth. We are confident looking ahead since the growth we've achieved isn't a one-time spike. We've consistently added users for the past year, averaging around two million new users per month in seven of the last ten months and one million in the eight of the last ten. Therefore, to sum up, our focus on product quality and performance is proving effective, driving retention. Regarding international growth, although our user base is still roughly 50% U.S. and 50% non-U.S., our peers typically see 80% to 90% in non-U.S. markets. Therefore, there remains significant opportunity, especially through machine translation. Our aim is to translate our predominantly English corpus into other languages, which we hope will help accelerate international growth. Jen, Drew, do you want to comment on the outlook for the latter half of the year?

Sure. I'll start and then pass it over to Drew. The market looks healthy, particularly for brand advertising, which is as strong as it's been since 2022. We feel positive about numerous aspects of our business that performed well in Q1 and it positions us well for the second half. Our strategies are gaining momentum. I appreciate the vertical diversification we are seeing, as well as the accelerating growth in our mid-market channel both in North America and Europe. However, it is critical to note that Q1 had previously easier comparisons with growth recorded at 12% year-over-year in Q1 2023. Therefore, we have limited visibility into the second half of the year. Additionally, 80% of our revenue originates in the U.S., which may be affected by the upcoming U.S. elections that could potentially impact our advertisers, especially brand advertisers. Influences such as inflation and geopolitical context may also pose challenges alongside tougher comps in Q3 and Q4. That said, we are excited about the solid start we had and the underlying strategies we are implementing to gain traction. Drew, would you like to add to that?

Yes, I think that's well articulated, Jen. It was a solid quarter for us from start to finish, and March was particularly potent. As Jen mentioned, the Q1 comps are more lenient than those in the second half of the year, normally in the mid-20s for growth. While we may have experienced some momentum from the IPO, it's challenging to quantify that impact definitively. Overall, March was strong for us. On the cost side, we've found a good rhythm as well. Over the past four quarters, we've seen total adjusted costs rising between 5% to 15%, averaging around 9%. We believe we are reaching a plateau where we can scale efficiently, adding resources strategically, particularly in machine learning and sales. Our headcount represents the primary cost driver for us, accounting for 85% of total costs. We feel good about the trajectory for at least the next couple of quarters, but we remain vigilant regarding headwinds and tailwinds that may arise in the latter half of the year.

Our next question comes from Doug Anmuth from J.P. Morgan. Please go ahead. Your line is open.

Thanks for taking the questions. I have two, one for Steve and one for Drew. Steve, you highlighted the substantial opportunity in on-platform search. Could you elaborate on what excites you here for users and advertisers? Then Drew, could you provide more insights regarding your investment philosophy this year? You scaled back significantly in 2023, and now we're seeing significant increments in Q1. How should we think about the 5X ratio between revenue growth and cost growth throughout the year and beyond? Thank you.

Sure, thanks. My initial point about on-platform search is that a significant number of our users conduct searches during their first session on Reddit. I believe that one of the largest challenges and opportunities we face is helping users find their home on Reddit. Many users enter what they're looking for into our search box, so providing a great on-platform search experience is crucial. Presently, we handle over a billion search queries per month, and there exists potential for even more growth. We've been investing in our search backend, and some quality-of-life features like fail tracking and autocomplete will be unveiled shortly. Additionally, we have some overdue improvements to the user interface set for completion this year. As the search product improves, it creates an opportunity for monetizing those pages. Currently, we do not feature ads on search result pages, which is a high-performing product on other platforms, and there's no reason it can't be for Reddit as well, given the explicit intent when users search. Therefore, our initial aim is to improve the product for users, followed by exploring monetization once we establish a solid foundation. Drew, your question regarding investment philosophy?

Yeah, thank you for the question, Doug. In terms of investment philosophy, it remains unchanged. Your observation about revenue growth being five times higher than cost growth is indeed encouraging. The revenue line or numerator has seen significant expansion. Over the last three quarters, we've averaged around 23% revenue growth; in contrast, this quarter we achieved 48%. On the other hand, total adjusted cost growth has held steady around 9%. The key takeaway is that we were able to leverage the resources we already had to drive a differential top line, resulting in double growth rates compared to the previous three quarters. Internally, we aim for our revenue growth to consistently double our cost growth over the long term. However, some quarters will naturally perform better than that, and Q1 exemplifies one of those occasions.

Our next question comes from Brian Nowak from Morgan Stanley. Please go ahead. Your line is open.

Thanks for taking my questions. I have two: First, on the robust user growth, can you clarify the impact of the new Google partnership? Can you quantify any incremental traffic trends resulting from that? And then for my follow-up, where do you stand concerning the Google SGE integration? Should we perceive this as incremental query integration throughout the year for enhancing growth, or how does that relationship function?

Sure, Brian. The primary factor driving user growth is product performance and quality, which is what drives retention and subsequently growth over time. We witness a tailwind from Google, particularly evident in our logged-out figures. However, that does not correlate directly to our agreement with Google concerning data training. The most significant boost to traffic from Google has stemmed from performance improvements that render our pages significantly faster—many times two to five times quicker. This rapid load time positively influences Google rankings. While we do contend with algorithm changes from Google, of which we experience two each year, we generally refrain from celebrating or lamenting them. Nevertheless, our consistent growth—around a million users monthly for the past year—speaks to the enhancements we have implemented. Additionally, there is a larger secular trend favoring human-generated content as machine-generated content gains prominence; this benefits Reddit immensely. Finally, regarding our product integration with Google, we are assessing how our data is displayed and ensuring it respects our brand while directing users towards our platform. I am confident about how this situation will develop. Having a strong index on Google has always been advantageous for us and adds value for users, enabling them to locate their desired content.

Our next question comes from Justin Post from Bank of America. Please go ahead. Your line is open.

Great. I'd like to ask about user retention and churn. Are you seeing a larger influx of users at the top of the funnel, or is it primarily due to reduced churn rates? Are new users returning more frequently, increasing daily activity? Additionally, regarding your guidance, could you detail your approach to providing guidance each quarter, especially as you navigate sequential growth challenges this year? Thank you.

Certainly. Reddit has a much larger top of the funnel, with over 500 million monthly users for some time. However, we mainly track daily and weekly active users. Our primary focus is improving retention, and we are confident that all users on the Internet will occasionally revisit Reddit, whether through search or word of mouth. The challenge lies in retaining those users. This dedication to quality and performance has significantly improved our capacity for new user retention and returning previous users. We have noticed substantial improvements in both areas, which compound over time, consequently influencing our growth figures. Therefore, to reiterate, this quarter's results reflect enhanced product quality, which is amply benefiting retention. Moving on to guidance, Drew will provide more insights regarding how we approach our outlook each quarter.

On a high-level perspective, we will guide on a quarterly basis, providing estimates one quarter ahead for revenues alongside adjusted EBITDA metrics. Regarding our guidance for Q2, I acknowledge your point regarding our robust 48% Q1 growth, with the midpoint of our guidance reflecting a more moderate mid-30s growth. There are certainly nuances in these comps; Q1 was relatively easier than the second half of the year, historically achieving 23% growth. Additionally, we might have garnered some momentum from the IPO, albeit difficult to measure. Other variables also come into play—Q1 had extra time with Leap Year, Easter occurred earlier this year—all contributing factors. Overall, we are beginning the year with solid momentum in Q1, though cautiously navigating the second quarter based on prior trends and anticipated challenges like inflation and geopolitical situations affecting our brand advertisers, particularly as we approach the general election. Therefore, we're excited about how the year is commencing while remaining practical about upcoming challenges.

Our next question comes from Eric Sheridan from Goldman Sachs. Please go ahead. Your line is open.

Thank you very much. I have a two-part question for Jen. When you're engaging with advertisers regarding the platform’s future, which initiatives are currently driving the most traction for increasing advertiser counts or ad spend as we progress into the 2024 budget cycle? Moreover, what persistent challenges or friction points are you and your team focused on addressing to secure higher advertiser engagement beyond 2024 in your long-term strategy?

Thank you for the question. I would say our goal to become a leader in contextual interstitial advertising is both distinctive and resonates with our advertising partners. The notion that Reddit can serve as a full-funnel solution is highly attractive, and we've made measurable progress in that area. We have made significant strides in the upper funnel with brand advertising; it's encouraging to see results as we focus on enhancing performance metrics at the mid-funnel, highlighted by growth in click-through rates and volumes. Furthermore, we recently rolled out initiatives including dynamic product ads that bolster our capabilities at the lower end of the funnel. Advertisers have noted our commitment, and they appreciate the value we offer at every stage of the funnel. Our expansion into signaling for bottom-funnel conversions, including specific tests around ad manager partnerships and Helium, demonstrates our proactive approach to ensuring effective signaling for future models. Our advertisers exhibit considerable excitement as they recognize our growth across brand and mid-funnel channels, with prospects of unlocking lower-funnel opportunities significantly amplifying possibilities.

Our final question comes from Benjamin Black from Deutsche Bank. Please go ahead. Your line is open.

Thank you for the question, Steve. I know you're quite enthusiastic about the developer platform and its longer-term transformative potential. However, in the near term, could you highlight some necessary investment areas to expedite its development? Additionally, might the developer platform yield positive implications for ad revenue growth?

Thanks for the questions, Ben. To begin, I would categorize the developer platform as a relatively near-term opportunity. Presently, we have a few hundred developers actively engaging with the platform, with some of their contributions already in production, like scoreboards and stock tickers. Our goal is to open the platform fully, allowing all developers from our waitlist—accounting for thousands—to join by this summer. We aim to introduce monetization features later this year as well. So I believe there's a great deal of potential here, and we have concentrated efforts directed at accelerating its market entry. As for the dynamic between logged-out and logged-in users, it is important to note that logged-in users form the foundation of our business today. We continue to attract many logged-out users, particularly from Google. However, our strategy does not revolve around converting logged-out users into logged-in users in each session—they often enter with a question they want answered. Therefore, it's imperative we deliver that answer effectively. Simultaneously, we are working towards enhancing our ability to monetize logged-out users who typically engage with specific post detail pages or comment pages. Although ads are not currently featured on those pages, we are in the early stages of maximizing ad density to ensure targeted advertising on those pages to capture monetization potential. In summary, logged-out users today symbolize future growth opportunities for logged-in conversions while simultaneously offering considerable monetization possibilities in their own right. Our primary focus remains on delivering an excellent experience for our logged-out users while providing them with the information they seek and enhancing overall retention rates.

Our last question today will come from Tom Champion from Piper Sandler. Please go ahead. Your line is open.

Hi, good afternoon. Steve, could you delve a bit deeper into the machine translation tools you're developing, especially concerning foreign markets? I understand there's ongoing work surrounding the French language. How have you observed user trends in French-speaking countries? For Drew or Jen, regarding the early stages of data licensing, we are eager to learn about your early insights, whether they pertain to financial impacts or product potential. Any perspectives you could share would be greatly appreciated. Thank you.

Great question. With our large language models, we have the capacity to translate Reddit's entire corpus to human-level quality. This is technology that was simply non-existent a year ago. French is the first language for this endeavor, currently in testing, and results are promising. Users in France who are part of this test group can now view all feeds—including major communities like AskReddit—in French. This is leading to the improved retention rates and increased time users spend on the platform, and we are also witnessing the content being indexed by French-language Google searches. This gives rise to new user acquisitions as well. So, that’s very encouraging. We also plan to introduce more languages this year, with Spanish being next on the agenda—this represents a significant opportunity for us. As I often say, we want everyone in the world to find their place on Reddit and we aim to achieve this as swiftly as possible. Hence, the translation tool represents our best chance to accelerate growth in non-English markets. The second part regards data licensing, Jen?

Certainly. When we approach data licensing, we envision a two-pronged strategy: one exists in well-established markets—think social listening, financial services, etc.—where we have learned there’s a clear interest in embedded data for insights that support business decisions. Although still in its infancy, this market boasts numerous participants, which leads to smaller deal sizes. The other engine is larger but fewer agreements with companies building AI models, and we perceive these as mid-term opportunities since the market remains nascent. We are keen to see how these develop. That said, user privacy remains paramount to us, and so it is crucial that our partnership agreements ensure users' data rights are respected. We are deliberate in choosing partners that can grow collaboratively with us. Not all partnerships will be a fit, thus we take this selection process seriously. That said, we have recorded significant interest from smaller players, with several seven-figure agreements finalized, which is an encouraging development. Additionally, the cost associated with preparing the data has been lower than anticipated, contributing positively to our gross margins. These factors have impacted our strong performance during Q1, which I believe is indicative of the potential these initiatives hold.

I would like to add two points regarding the financial aspect, Tom. Firstly, as Jen indicated, the smaller-scale agreements we’ve ventured into reflect seven-figure deals, which is a positive development, especially for a company like ours. Secondly, it’s worth noting that the costs associated with data preparation have been lower than anticipated, resulting in a positive margin trajectory that excellently reflects on our P&L statement—this further exemplifies our Q1 performance.

Thank you for your questions. And that concludes our call. Steve, any final thoughts?

Thanks for joining us today, everyone. Your participation and support mean a lot. It’s been exciting to share our first public earnings call with you. We look forward to our journey ahead together. Thank you and have a great day.

This concludes Reddit's Q1 2024 Earnings Call. You may now disconnect.