Reddit, Inc. Q2 FY2024 Earnings Call

Good afternoon. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to Reddit's Second Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any 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.

Great. Thanks, Krista. Good afternoon, everyone. Welcome to Reddit's second quarter 2024 earnings conference call. Joining me today are Steve Huffman, Reddit's Co-Founder and CEO; Jen Wong, Reddit's COO; and Drew Vollero, Reddit's CFO. Before we get started, I'd like to remind you that our remarks today will include forward-looking statements. Actual results may vary materially from those contemplated by these forward-looking statements. Information concerning risks, uncertainties and other factors that could cause these results to differ is included in our SEC filings. 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. During this call, we will discuss both GAAP and non-GAAP financial measures. Reconciliation of GAAP to non-GAAP financial measures is set forth in our letter to shareholders. Our second quarter letter to shareholders and accompanying earnings press release are available on our Investor Relations website.

Hi, everyone. Thank you for joining, and welcome to our second quarter earnings call. Q2 was another strong quarter for Reddit in our communities. We kept up our momentum with both strong business performance and progress on the product. In Q2, both users and revenue grew over 50% year-over-year. And for the second consecutive quarter, we had positive cash flow and we're profitable on an adjusted EBITDA basis. User growth has continued to climb, reaching new heights with over 342 million active users and more than 91 million daily active users. More and more people are coming to Reddit to explore their interests, engage in conversations and find their communities. Increasingly, users are turning to Reddit for answers to their questions via search, recognizing the authenticity and trustworthiness of our content across a wide variety of topics. Our product work is focused on enhancing the user experience to make Reddit faster, safer and easier to use. Conversations are the heart of Reddit, and we've improved our app with near-instant comment loading and more intuitive navigation across different post types, including text, video and images. The recent improvements bring users into conversations faster and more often, driving more engagement on the platform. The number of comments viewed reached a new high, up 10% from Q1 to Q2. Over the years, we've hosted some notable Ask Me Anything sessions, ranging from U.S. presidents to celebrities and sports figures to regular people with interesting stories. We introduced several updates to the AMA feature, making it easier for a host to schedule and post and easier for users to participate. During the pilot, we've seen hundreds of new AMAs created, including those with high-profile brands and artists. These product updates tie into our advertising strategy, allowing us to test new conversation ad placements and AMA ads, which are high-intent services for brands and businesses to reach their audience. As the platform continues to scale, so does our need for safety and moderation tools. Using AI, we are reducing the moderation burden and making Reddit's platform safer at scale. We're evolving what the day-to-day looks like for moderators on Reddit, allowing them to spend more time engaging and growing their communities. International expansion remains a top priority and one of our largest opportunities. 50% of our current user base is outside of the U.S., and we believe we can scale this significantly over time. International growth was a key driver in Q2, both in users and revenue. International daily active users exceeded 45 million, growing 44% year-over-year and 11% from Q1. This was led by focus countries like France, India, the U.K. and the Philippines, where we're seeing good results with our growth strategies, including through machine translation. Immersive machine translation is now widely available in French, and as a result, France was one of our fastest growing countries, surpassing growth in the U.S. We will now begin to expand machine translation to German, Spanish and Portuguese, aiming to make Reddit accessible to everyone regardless of their native language. Looking ahead, we're making progress across our emerging initiatives, including the user economy, search and data licensing. Starting with the user economy, we're excited to have our developer platform out to public beta with a few hundred active developers. In Q2, we saw growing engagement with about three times more custom posts than in Q1, including scoreboards and stock tickers in our international sports and investing communities. We're working towards enabling monetization within the developer platform to empower our users to create and earn money on the platform this year. I look forward to sharing more about this in the coming quarters. Next, let's discuss our opportunity in search. Reddit's content is uniquely valuable and becoming more important in the context of Internet search. Users run over 1 billion search queries a month on Reddit today, and our product work is improving the search experience and success rate on the platform. Later this year, we will begin testing new search result pages powered by AI to summarize and recommend content, helping users dive deeper into product shows, games and discover new communities on Reddit. Turning to third-party search. We're seeing an evolution in the search ecosystem where Internet search, summarization and training are blending. We are seeking the right balance between openness and protecting our users and platform. Our partnerships with Google and OpenAI align with our public content policies and uphold our belief in the connected Internet, helping people find what they're looking for and to discover communities on Reddit. Our preference is for Reddit to be open and indexed in third-party search, and we are in discussions with both big and small search engines toward this end. However, some players in the ecosystem have not been transparent with their use of Reddit's content. In those instances, we've blocked access to protect Reddit content and user privacy. We believe the Internet and search are better with Reddit's content and we remain open to finding solutions that are mutually beneficial to our users, Reddit and the broader Internet community. To wrap up, I'm happy with the progress we've made in our first two quarters as a public company. We're still early in our journey with many opportunities and challenges for execution ahead to fulfill our mission. Thank you again for being a part of this journey with us. And now, I'll hand it over to Jen.

Okay. Thanks, Steve. Hello, everyone. Q2 was another strong quarter for revenue. Total revenue grew 54% year-over-year to $281.2 million and accelerated from the prior quarter and the fastest year-over-year growth rate since Q1 2022. The investments we made across the business continue to pay off, and we're pleased with the results in the first half of the year. The ad business continues to scale in Q2 and accelerated from the prior quarter as we executed on our strategies and saw a stable ad market. Ad revenue grew 41% year-over-year to $253.1 million. We made progress scaling and diversifying the business, expanding partnerships and executing on our AdTech roadmap. Let me discuss our ad revenue drivers. We saw double-digit year-over-year growth in impressions from personalized ad loads, underlying user growth and product enhancements to drive ad efficiency against a year-over-year decline in pricing. We continue to diversify our business across channels, verticals and geographies. The global scale channel, including mid-market and SMB grew over 50% year-over-year, driven by both new advertiser activation and by deepening existing relationships. Strength in our verticals was led by retail, pharma and financial services, which each grew over 50% year-over-year. International revenue accelerated from the prior quarter and grew 49% year-over-year, driven by strength across large and mid-market customers in EMEA. The big six agency relationships were also growth drivers in the quarter. Our Q2 growth was across the full funnel. Performance objectives drove more than half of our revenue in the quarter and we more than doubled the number of clicks again as we continue to enhance the lower funnel capabilities of our full funnel advertising business. We made measurable progress against our AdTech roadmap in Q2. We focused on: number one, driving performance of our ad solutions; number two, improving usability for our advertisers and productivity for our sales force; and number three, offering our advertisers unique solutions and bringing them closer to our communities. Now let me discuss each. First, driving performance of our ad solutions. We continued building out our conversion API ecosystem with a new partnership with mParticle. This adds to our partnerships with Google Tag Manager and Tealium as we execute our one-to-many approach for CAP adoption. We launched a performance ad solution, Dynamic Product Ads or DPA, to public data. Early adopters have seen about a 2x higher return on ad spend, or ROAS, compared to other conversion campaigns. Now, it's still early for this solution, and we'll continue to invest in improving performance with this new solution. Recently, we announced the acquisition of Memorable AI, which helps accelerate our roadmap to bring AI-driven intelligence tools and ad creative to our advertisers to help drive performance. With this acquisition, we're adding AI foundational models to our ad stack to help optimize creative, and we are working towards integration beginning to have an impact next year. Second, improving usability for our users and productivity for our sales force. We've launched our Reddit ads API to GA, allowing partners and advertisers to integrate with Reddit's ad manager and build customized campaigns and analytics, which help to expand our platform's reach. Sprinklr is the first marketing intelligence platform to integrate with both Reddit's ads API and data API, offering advertisers unique insights and capabilities. In Q2, we extended our partnership with DoubleVerify and announced a new partnership with IAS to provide advertisers with brand safety and suitability measurement complementing our robust first-party brand safety controls and fostering transparency and trust with the major brands. Third, offering our advertisers unique solutions and bringing them closer to communities. We expanded ad placements on the conversation page, a high intent and valuable surface for both our users and advertisers and where nearly 50% of all screen views occur. We launched the test of ads between comments and a new refreshed set of ad formats for conversation ads that are driving higher click-through rates in early testing. Advertisers using both in-feed and conversation ads experience a lift in action intent compared to those using old in-feed ads. We also invested in bringing new content types to our users and offering businesses and advertisers new ways to reach and engage with communities. In Q2, we launched the next-generation version of our Ask Me Anything, AMA product, resulting in hundreds of new AMAs created. Businesses are hosting AMAs and promoting them with ads to engage with communities and to share more about their brands and products. We also announced a partnership program, bringing sports content to Reddit's ad communities, including highlight videos, AMAs and behind-the-scenes material. This helps drive engagement on the platform and offers new ad format and placements for our advertisers. Sports are a global interest and a category that our users are deeply passionate about with over 1,000 active sports communities on Reddit, partnering with Sports League was a natural place to start. We'll see how this program unfolds later this year and consider how we might expand to other verticals and categories in the future. Next, I'll shift to our data licensing business. Other revenue grew over 690% year-over-year to $28.1 million, primarily driven by data licensing agreements signed in the first half of the year. This market is still evolving, and we are exploring agreements of partners across the landscape who are aligned with our public content and user privacy policies and where there is commercial alignment. Through recent partnerships with Sprinklr and OpenAI, we make Reddit's corpus of authentic conversations available for these partners to access while also putting guardrails in place that protect our users' privacy and Reddit's content. To date, our data licensing strategy has focused on marketing intelligence platforms and large-scale enterprise technology and search company, and we made good progress addressing these markets. We'll continue to explore opportunities with new verticals and potential ways to work with additional large and smaller-scale emerging AI companies. Overall, this was a good first half of the year for Reddit, and we've made a lot of progress. Our focus now turns to the back half of the year as we work to continue growing the business. Now I'll turn the call over to Drew.

Thank you, Jen, and good afternoon, everyone. Reddit delivered very strong second quarter results across the board, which built on the sound start in Q1 and rounded out a solid first half of the year. In the quarter, three key financial themes developed: first, our most important growth and cost metrics really shined; second, our profitability continues to inflect rapidly as our business scales; third, we saw continued traction on important economic drivers like cash flow, CapEx, dilution and stock-based compensation. Let's speak to each point starting first with strength and key metrics, specifically users, revenues, gross margins and OpEx. We saw really solid growth in the quarter with both user growth and revenue growth exceeding 50% year-over-year. The DAU was $91.2 million, up 51%, logged out users were about 70% of the end quarter growth, but total logged-in users grew 31% year-over-year, the fastest rate in the last few years. Revenues were $281 million, up 54% as impression gains continue to fuel our growth. Ad revenue grew 41% in Q2, while other revenue grew over 690%, primarily driven by new licensing deals with Google, OpenAI and others. Margin growth also really shined in the quarter. Gross margins were nearly 90%, up from 84% in the prior year, driven by operating efficiencies, lower pricing from our cloud hosting contracts and the leverage from incremental revenues. For Q2, our 12% adjusted OpEx cost growth is very consistent with the last four quarters where adjusted OpEx growth has averaged about 9%. The Company continues to leverage the organizational scale it's built over the last few years as we targeted modest hiring in the front-of-house areas like AdTech, machine learning and sales. Total headcount was up less than 1% sequentially and 3% year-over-year. So, as you can see, terrific traction on key metrics. Second, let me touch on how profitability is inflecting rapidly as the business scales. On a GAAP basis, our net loss was $10 million, $31 million better than the prior year and very solid progress against our internal goal of reaching GAAP breakeven. Q2 adjusted EBITDA was nearly $40 million, up $30 million sequentially and up $75 million year-over-year. Adjusted EBITDA margins reached the mid-double-digit level at 14%, up from 4% in Q1 and negative 19% in the prior year. The key to our significant gains in profitability continues to be both execution and our strong economic model. Revenue grew over five times as fast as total adjusted costs in Q2, similar to Q1 as revenues grew 54% year-over-year and total adjusted costs grew slightly less than 11% year-over-year. That's well ahead of our long-term internal goal of revenue growth twice as fast as total adjusted cost growth. Our incremental adjusted EBITDA margins were 76% for the quarter, slightly higher than our last four-quarter average of 73%. In Q2, we saw a $75 million positive change in adjusted EBITDA on a $98 million change in revenue. Now to the third point, we're not only seeing good traction in areas like growth and costs, but also on important metrics like cash flow, CapEx, stock-based compensation and dilution. Operating cash flow was $28 million in Q2, an $82 million positive change from Q2 of 2023. For the first half of the year, positive operating cash flow was $60 million. Our CapEx remains very light, about $1 million in the second quarter, less than 1% of revenue. Stock-based compensation, including related taxes, was $67 million, down substantially from the last quarter due to the recognition of IPO-related stock expenses. Stock-based compensation was about 24% of revenue for the quarter. Share count movements were modest in Q2 as basic shares outstanding were $166 million, up 1% sequentially, but fully diluted shares were $205 million, down sequentially. On the other hand, cash was $1.7 billion, which gives us a lot of flexibility as our business scales into profitability and positive cash flow. In medium term, we believe the right amount of cash on hand for the business today is around $800 million to $1 billion. The Company will look to deploy capital where it makes sense over time with capital priorities being: first, investing in our business, M&A and share repurchases. As Jen mentioned, we recently completed and announced the acquisition of Memorable AI and ad creative optimization platform to help drive lower funnel performance for our advertisers. The preliminary purchase price consideration was $19.9 million, including $17.1 million of cash. The deal closed in late July and will be reflected in the Q3 financial statements. As we look ahead, we'll share our internal thoughts on revenue and adjusted EBITDA for the third quarter, where we have the greatest data of visibility. For the third quarter 2024, we estimate revenue in the range of $290 million to $310 million and adjusted EBITDA in the range of $40 million to $60 million. These estimates include the anticipated benefits from the recently signed content partnerships with the sports leagues. We anticipate these deals will contribute modestly to revenue this year, more in Q4 than Q3 and should have a greater financial impact in 2025 and beyond. To summarize, the strength and consistency of the numbers were nice to see throughout the first half of 2024. Both Q1 and Q2 were solid quarters for Reddit. That said, our business historically scales seasonally, and we've turned our attention and focus to the back half of 2024. Now let me turn the call over to Steve.

Thanks, Drew. Thanks, Jen. We're going to do two questions from our community, and then we'll open it up to everybody else. First question, in past interviews, you have mentioned using large language models to translate Reddit's content into other languages to better connect Reddit's communities internationally. Is this something that is being actively built or just a vision for a distant future? So, it's something that's being built. It's testing and for French, which was our first language for doing this, it's now in general availability, which means if you're in France, speaking French, minus a small holdout group, you can see the full immersive real-time translation experience. And it's working very well. So now we're kicking off German, Spanish and Portuguese with our aim to get those out later this year as well. Long story short, the test was successful. This is a really promising feature, and I think it should have an impact in the short term. Second question, I'll read and this one's for Jen. Advertising is the prime source of revenue for Reddit. To increase this revenue, do you plan to focus on increasing the quantity, number of ads, or quality, profit generated per ad, of ads featured on Reddit?

So, what's important to growing revenue in our auction is that advertisers find the outcomes they want at the volumes and prices they want. Our ads platform and marketplace is still early, still young. So, we do see opportunity to drive more demand and performance which can drive more value per ad or CPM, cost per thousand impressions. As load on Reddit, where there are ads today, like in the feed, is light compared to peers. The best we can tell outside in is about half of peer platforms. But there are still many places on Reddit without ads today. So, we're more focused on designing ads for spaces where users are spending more time versus increasing ad load in existing spaces. For example, 50% of screen views are now in conversation stages, that's an opportunity.

Okay. Thanks, Jen. For the community questions, Jen, Drew and I will record answers to the rest of them and post them tomorrow. Okay. Jesse, back to you.

Great. Thanks, Steve. Thanks, Jen. Krista, why don't we open up the line, take some questions from the folks that are on the line now. Appreciate it.

Your first question comes from Doug Anmuth from JPMorgan. Please go ahead.

One for Drew and one for Steve. Drew, I was hoping you could provide some more color on the 3Q guide, in particular, any more insight into the ad market and the health in the third quarter. It looks like the revenue outlook is either very conservative or perhaps you're seeing something in the business because if you back out OpenAI incremental contribution and then perhaps even some of the sports league benefits as well. It doesn't suggest much sequential growth in revenue. So, I was just checking if there's anything to call out there. And then, Steve, you talked about testing new search results pages. Can you just elaborate there? Is this going to be done all internally? Or are you partnering with third-party providers here as well?

Okay. On the guide, Doug here, we guided 290 to 310. If you take the midpoint of that year-over-year growth is mid-40s. We think that's a good number. We think that's differentiated versus the pure set. If you look over the last four quarters, we've been growing in the mid- to high 30s. So, we feel like it's a differentiated number. I take your point that your measurement stake is a bit different. You're looking just only at the second quarter. So, I take your point there. In terms of the revenue drivers that you're looking at sort of the incrementality of them. Look, I think that the sports deals are something that's probably a bigger idea for us in 2025 and beyond. We have to get that sold through our sales force, et cetera. I would look for a very modest impact in Q3. I think we'll have a little bit more, particularly with the NFL in the fourth quarter. That's kind of the main part of the NFL season. I think that incrementality in the third quarter will be pretty modest. As it relates to kind of OpenAI, we saw about half the benefit of the deal in the second quarter, so there will be a little bit of incrementality to your point. Overall, I think the guide feels good. Are there particular things that we're looking at in the third quarter that we can put our finger on? No, there isn't anything that's particularly different than what we've seen. For the full year, there still is some macro uncertainty and particularly in the fourth quarter around elections. There's a little bit in the background. But I think overall in the third quarter, the guide feels good to where the business is right now feels better than where we've been over the last four quarters. But I do take your point, it's a little bit lower than we've been in the second quarter, but I think we take a little broader lens than that.

Okay. Thanks, Doug. The second question about search. So, we're talking about on Reddit search. A lot of our work over the last couple of years has been on the back end. So improving the actual results, so the speed and relevance of those results. Some of that is on first-party technology. Some of that is third-party technology. We're also beginning to enhance the results with AI. Again, some of those are first-party models. Some of those will be third-party models. What I was really referring to in my script is the rest of this year, we'll start to see the front-end product actually change, so the user experience and how we package these results because that's gone unchanged for a long time. Search on Reddit is a huge opportunity. Many new users run a search. You've heard me talk about onboarding, helping connect users to their interest on Reddit. For many users, they're literally typing into a box exactly what they're interested in. I think this is a really important consumer product service area. Over the long term, there's significant advertising potential there as well. But really, what I'm referring to here is it will be our in-house efforts to improve the presentation of that product.

I will be your request to only have one question. So, I'm going to ask one of Steve. Putting on your protector of culture hat, Steve, historically, these are conversations and there hasn't been a hidden agenda about earning money. You guys are going to try to earn money now for people and creators on the platform which sort of moves it more towards a Twitch or a YouTube in fine line. So, how do you protect this wonderful unique culture of Reddit at the same time you're going to let people make money from these conversations?

Thank you, Laura. Great question. One of the truly special and honestly, almost magical things about Reddit is the amount of time and effort people spend helping each other, giving advice, helping people through decisions sometimes small decisions, which should I watch tonight, sometimes big decisions like should I go through this breakup. It's truly profound. Your question is if we start to include other incentives in there, like monetary incentives, does that change. In my experience on Reddit, whenever we add basically a new way of using Reddit, what happens is it expands Reddit, but we've not seen it cannibalize existing Reddit. I think the existing altruistic-free version of Reddit will continue to exist and thrive just the way it has. Now we will unlock the door for new use cases, new types of subreddits that can be built that may have exclusive content or private areas, things of that nature. A good example is that at Reddit, we didn't host images back in the past. So, we'd link to other websites or platforms for images. When we added image hosting, all of a sudden, there's a ton of new communities built around that feature, but the existing text and link-based Reddit also continued to grow. I'd look at this as an opportunity for expansion as opposed to one that is going to cannibalize the existing Reddit, which is something truly precious. We'll, of course, watch these things closely, but that's how we see it playing out.

I wanted to ask on usage and advertising. Steve, I think we saw logged in DAUs up 32%, maybe amongst the fastest growth in the past couple of years and we saw comments also, comments viewed, I think, up as well. I wanted to hear about the changes the team has made on the site itself, whether it be Shred-It, new onboarding processes that have driven this and really curious about the lasting implications here. And then, Jen, you mentioned the stable ad market. We saw each other a few weeks back over con. Can I just wanted to hear your conversations with advertisers have evolved really over the past few months just in terms of how the dynamic has changed in terms of advertising on Reddit.

Okay. Ron, thank you for the questions. Yes, as you observed, logged in DAU is up over 30% last year. That is indeed our fastest growth rate among that segment in years. So, we're very happy with that. You answered your own question, improved onboarding, Shred-it, which represents web performance. I would say broadly a general push around quality on Reddit has helped a lot. There is a structural change that we've been going through over the last couple of years, which is it used to be when you're a new user to Reddit, we were putting you into basically a global feed. Now what happens is we get you into the community onboarding experience. We try to find the interest specific to you and then we put you in a home feed that has those communities and subreddits. We grow from there. That first user experience has gotten much more dialed in and relevant to new users, which has been driving meaningful improvements to new user retention. The story for a long time is we've had this very big top of funnel from search and word of mouth. The question has been, can we retain those users? The work focused on relevancy and product quality and ensuring users see uniquely engaging content is at the forefront of our strategy. As for the ad market, Jen will touch on that.

Yes, I believe we observed a stable advertising market in the second quarter. Following the conference, there was very strong sentiment, particularly regarding our collaboration with Shred-It, which has been very positive. We're keeping an eye on several factors, including inflation, geopolitics, and upcoming elections. There are noticeable election-related anxieties, including some pauses in the U.K. due to the snap election and recent events like the Trump rally shooting. This has led to a more cautious outlook. Additionally, agencies have indicated a tendency toward maintaining flat budgets instead of pursuing growth in the latter half of the year. The larger holding companies are also exercising caution, and since we're not heavily involved in political advertising, which may benefit from a political upturn, we don't anticipate that affecting us significantly. Overall, with the cautious environment, I still think we're in a strong position.

I want to go back to the ad markets, Jen. Can you talk to us about what you're seeing on your branded advertiser spend? Are you still seeing your advertisers who are mostly branded spent? Are they spending more on the branded side? What's driving that? Just sort of any update you can give us, I remember the pre-IPO. Walk us through sort of progress on growing your advertiser count, growing your advertiser spend, and your advertiser spend per advertiser over time?

Sure. Happy to. So just on your question about the brand. Brand as an objective was growing really nicely for us. In fact, brand spend has been solid, as we've seen both advertisers come into the auction and use our takeover product, which is a reserved product where they can align against specific subreddits. We've had nice adoption of our unique formats like the AMA that has been refreshed. Brand has been solid as an objective, with diversified spending across brand and performance. We have been growing the number of active advertisers, particularly in the managed segment for large customers in mid-market and managed SMB. Those are really seeds for the future because you start small and grow those advertisers with more products and objectives. We've had a number of growth drivers across our business, including both the mid-market and SMB growing over 50%, international becoming a growth driver, and vertical diversification leading to positive results.

The topic really is Memorable AI. Can you talk a little bit about why you felt that was the right asset for you as a team to acquire? How you thought about building organically around that broader theme versus maybe accelerating the path to market and going down the acquisition route and how we should be thinking about that asset being integrated and having an impact on the business in the years ahead?

Sure. Acquiring Memorable AI, which is one of the leaders in the market, helps accelerate our ability to add this part of the ad stack, which is around creative, both insights and optimization as well as creative generation. It can be valuable for driving performance and making an easier, more automated, scalable experience for advertisers. It's something that we had on our roadmap that we could build, but acquiring Memorable is helping us to get that technology and talent more quickly. We're integrating technology and talent with the acquisition, and we're doing that integration work in the back half of this year to start having an impact next year, but it will accelerate our ability to deliver performance at the lower end of the funnel, particularly.

I got a couple of questions. Steve, you talked about improving engagement which drives people into the platform. But your weekly users are still growing faster than your daily users. How do you close that gap over time? Is it product changes? It's obviously great that you have all of these people coming and touching Reddit every single week. But how do you get them to become daily active users? What have you seen historically that converts somebody from a search-based user or someone who comes in once in a while to a daily user? I wanted to follow up on the CPM and ARPU side.

Great. Okay. Rich, thanks. I'll take the first half. Jen will take the second half. First things first, we're happy with growth. Weekly is growing, daily is growing, logged in, logged out is growing, so I think we're in a good position there. Your observation is correct. Weekly and monthly can be more volatile due to third-party search or events in the news. Of course, we want to grow daily users. We think about it in terms of how we retain the daily users that come to the platform every day, both new users and core users. Our work there is around relevance, machine learning, onboarding and product quality ensuring we see engaging content. A simple question is whether users see engaging content in their first session on Reddit. As for the second part, Jen will elaborate.

Sure. Look, nobody manages at the Company on two. We manage revenue growth, user growth and we're in the fortunate position of having strong revenue and user growth. The users being a little more, that's why ARPU is down. When I look at the headroom we have, we’ve been growing share around the revenue side and continue to have headroom on ARPU. The decline in CPMs is driven by placement on the conversation page, which is a newer unit and we're still building demand for that unit. We're working on educating the market about that unit and refreshing the format so that it has a broader set of creative capabilities. I've mentioned earlier that 50% of screen views are now on the conversation page, which is performing well. Still, we have to match demand through the flow of ad impressions on that page. We will continue to grow demand on this new unit, which I think is really high performing.

You guys have seen an influx of new users just via search as well as improved product. Steve, you mentioned this earlier about the maturation of new user cohorts and how people spend more time. Are you seeing anything different with new users more recently? Can you also elaborate on the retail opportunity and what you need to do to unlock the advertising opportunity more acutely?

Thanks, Andrew. So, the question was, are we seeing anything in the latest cohort of new users? Broadly, we're seeing new user retention go up, which we measure internally. Over the last couple of quarters, we've seen steady improvement in new user retention. Our strategy has been to make Reddit better, simpler, faster, safer and easier to use. Happy with the new user retention, particularly among that new cohort. As for the retail opportunity on Reddit, Jen will discuss.

Yes, the retail opportunity, specifically around Dynamic Product Ads, is significant. However, it is one of the hardest in the industry. DPAs have their own objectives and models. We're working on several fronts to improve them, including improving our models and driving performance, implementing conversion APIs, and enabling first-party data for targeting. On the measurement side, retailers have specific audiences and loyalty programs they want to target against. Our goal this year is to test with a handful of partners and build the foundation for DPAs to be a more significant contributor in 2025 and beyond. It is a longer road but a big opportunity.

Steve, you've talked about the most reliable way to grow is to make Reddit better. I'm curious about the impact of sports content, subreddits functionality, search, text translation, and what you think is most impactful from a customer experience perspective?

Thanks, Tom. I'd say broadly two dimensions to this. The first is general quality, which includes search experience onboarding and ease of use. For mature markets like the U.S., improved product quality has an outsized impact because the content is already there. The second dimension is outside the U.S. where machine translation offers a significant opportunity to grow the content base. Our tests in French have gone well, and we're expanding to other languages. The quality improvements will be critical to drive wider user engagement on the platform.

Steve, you discussed search and third-party search along with your data licensing business. Can you take us a layer deeper into those conversations and tell us more about the key variables at play in your dialogues with potential partners?

Sure. The corpus of content on Reddit is super valuable. The old status quo is that search engines crawl us and index us for users to find content. The status quo has changed; we can no longer assume intent for what Reddit's data is being used for. We moved to a model that's default blocking crawlers. We still want Reddit to be open and indexed, but it has to come with important terms related to user privacy, preventing the reselling of data. We've seen good sign-ups from big players, as well as medium and small players, but the ecosystem is dynamic. Our preference remains to have relationships while being careful about where Reddit data goes.

On the developer platform, you opened it up to monetization earlier than we anticipated. Can you discuss the results from the public data and any surprises?

Yes. The beta is going well. We are in a closed beta for most of this year with a few hundred developers playing with it. I'm excited to see where users take it. We're looking for surprises in creativity and innovation from users. We're aiming for an end-to-end proof of concept this year to enable user monetization through developer-built applications on the platform.

Yes, Alan. The cash goal of $800 million to $1 billion is our medium-term perspective. We see the cash flow starting to build positively, with a balance of $1.7 billion. The prioritization of cash deployment will be investing in the business, M&A, and eventually share repurchases. We wanted to give you a sense of how we view cash availability for future initiatives.

Great. Thanks, Krista. Thanks, everyone, for joining. We look forward to keeping the dialogue open. Take care.

Appreciate it, folks. See you.

And this concludes today's conference call. Thank you for your participation, and you may now disconnect.