Reddit, Inc. Q2 FY2025 Earnings Call

Good afternoon. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome everyone to Reddit's Second Quarter 2025 Earnings Call. I would now like to turn the call over to Jesse Rose, Head of Investor Relations. Jesse, you may begin your conference.

Hi, everyone. Welcome to Reddit's Second Quarter 2025 Earnings Call. Joining me are Steven Huffman, Reddit's Co-Founder and CEO; Jen Wong, Reddit's COO; and Drew Vollero, Reddit's CFO. I'd like to remind you that our remarks today will include forward-looking statements, and actual results may vary. Information concerning risks and other factors that could cause these results to vary is included in our SEC filings. These forward-looking statements represent our outlook only as of the date of this call, and we undertake no obligation to update any forward-looking statements. During this call, we will discuss both GAAP and non-GAAP financials. Reconciliation of GAAP to non-GAAP financials can be found in our letter to shareholders. Our second quarter letter to shareholders and earnings press release are available on our Investor Relations website and Investor Relations subreddit. And now I'll turn the call over to Steve.

Thanks, Jesse. Hi, everyone, and thank you for joining our Q2 earnings call. It's been another strong quarter for Reddit with particularly strong performance on the revenue and profitability lines, and I'm proud of how the company is executing as we move into the second half of 2025. A personal highlight for me was meeting with advertisers in Cannes earlier this summer. The trip was a good barometer for how brands view Reddit today. They want to work with us. They understand our distinct role on the Internet, and they recognize we deliver real value to their businesses. During a demo of Reddit Insights, our new AI-powered brand insights product, a client remarked, "This will be our Super Bowl ad next year." Okay, on to the numbers. Revenue grew 78% year-over-year to $500 million, our fastest quarterly growth rate since 2022. Daily active users grew to 110 million, up 21% year-over-year with growth in both the U.S. and international markets. This was driven mainly by product improvements and increased marketing activity. And this was our most profitable quarter yet. These results are a testament to our work, our users, and the power of Reddit's communities. We'll get to Q2 shortly, but what excites me most is what's ahead. The world and the Internet are rapidly changing, and I believe Reddit has a once-in-a-generation opportunity. For people, conversation and connection are becoming more valuable and rare. In a world increasingly dominated by algorithms and automation, the need for human voices has never been greater. We see this every day as nearly 50 million scrollers come to Reddit for their favorite communities and 60 million seekers land on Reddit in search of better answers to their questions. In fact, 80% of users in a recent survey believe some questions can only be answered by humans as opposed to AI-generated summaries. For LLM and AI search engines, these conversations and the knowledge they create are essential for training. Platforms like Reddit, where people discuss every aspect of life from the trivial to the transformative, are the backbone of building AI that actually works. That's why Reddit is the #1 most cited domain for AI across all models, per data collected by Profound. In an automated world that depends on human knowledge, we view Reddit as one of the most important and differentiated data sources. We believe this validates what we've always thought: human conversation is not being replaced by AI; instead, it's becoming more important. AI doesn't invent knowledge; it learns from us, from real people sharing real perspectives. You can't have artificial intelligence without actual intelligence. And for brands, Reddit's authenticity creates something rare: a direct connection with people when they're seeking trustworthy opinions. As more of the content you see online is synthesized, summarized, and sanitized by AI, Reddit stands out for its honesty and subjectivity. For many questions, there isn't a single objective answer. People want multiple viewpoints and live experiences. This is why Reddit is synonymous with product and service recommendations. People turn to Reddit when they want to make informed decisions fast. We see tremendous potential to grow our user base and deepen engagement, and we're moving quickly to align priorities and resources to capture that opportunity. As a first step, we clarified our product strategy and our investing to make Reddit a better experience for everyone who comes to the platform, whether they're scrolling their favorite subreddit, seeking input on a purchase, or discovering a new community for the first time. With the focus on the areas that matter most, we are deprioritizing a few initiatives, including our work on the user economy. It's still an opportunity we believe in, but we're concentrating our resources on the areas that will drive results for our most pressing needs: improving the core product, making Reddit a go-to search engine, and expanding internationally. This is what we're working on right now. Let's start with the core product. First impressions matter, and we want to make your first moments on Reddit sticky and worth coming back for. We're zeroing in on a few key areas, making onboarding even more intuitive and search-focused, lowering barriers to log in and contribute, and using AI to help people find their home, whether that's through real-time personalization or smarter community discovery. We're also moving fast on human verification to preserve Reddit's authenticity, something our users have repeatedly asked for and are eager to deliver. Second is search. Reddit is one of the few platforms positioned to become a true search destination. We offer something special: a breadth of conversations and knowledge you can't find anywhere else. Every week, hundreds of millions of people come to Reddit looking for advice, and we’re converting more of that intent into active users of Reddit's native search. We're seeing good traction here as our core search product now has 70 million weekly users, and Reddit Answers has grown to 6 million, up from 1 million last quarter. Next, we're expanding Reddit Answers globally, integrating it more deeply into the core search experience and making search a central feature across Reddit, pairing these product updates with marketing initiatives to increase awareness and adoption of Reddit Answers worldwide. Finally, international expansion. Machine translation is now live in 23 languages, unlocking Reddit for millions of people across Asia, Europe, and Latin America. This is just the start of a growth flywheel: translation and marketing bring people in, localized content and app experience deepen relevance, and skilled moderator recruitment creates stronger ecosystems. Our goal is for Reddit to be self-sustaining in these countries, and the early results are promising. Recently, we celebrated Reddit's 20th year, and I've never been more excited about our business and the potential than I am today. The Internet is evolving, and our role as a community-powered platform for human connection is only becoming more critical. This next chapter is ours to write, and we're finishing the first pages already. As I said before, we control our own destiny, and we're focused on building Reddit into the most trusted place on the Internet. Thank you to our team, the moderators, and users for making Reddit what it is today. With that, I'll hand it over to Jen to take you through the consumer and ad product strategy in more detail.

Thanks, Steve. Good afternoon, everyone. The second quarter demonstrated continued growth and strong execution, with total revenue reaching $500 million, up 78% year-over-year. Our unique proposition and ad platform improvements continue to deliver differentiated growth and positive outcomes for advertisers. Before discussing the ads business, I'll share some thoughts on the consumer product strategy and initiatives. You heard Steve discuss our three consumer product priorities: core product, search, and internationalization. I'm incredibly excited about the opportunity ahead for us to deliver fresh, helpful, and interesting conversations to a broader audience and build a best-in-class search product that brings real perspectives from real people. Steve and I are working closely to refine the product roadmap and align our investments to deliver more substantive improvements that we believe can drive consistent user growth and engagement. In addition, we're complementing our product investments with a paid marketing strategy. We're testing a full-funnel consumer marketing approach designed to grow user awareness and consideration, increase engagement, and find new users by educating a wider audience on Reddit's use cases and value proposition. We're encouraged by the brand campaign in France that's boosting awareness of Reddit and its local communities while bringing in new users to a more robust, French, immersive global and local experience. These initiatives are early, but we're moving quickly, and we'll have more to share in the coming quarters. Now moving to monetization. The advertising business grew 84% year-over-year in Q2, reaching $465 million. The growth was driven by broad-based strength across the business, with the majority of our growth coming from existing advertisers who are deepening their investments and retaining their share of spend with us. We also continue to acquire new customers. Total active advertiser count expanded by over 50% year-over-year in Q2, spanning large, mid-market, and small and medium-sized businesses. Moving to our ad stack. Our strategy is focused on making all businesses successful on Reddit by, one, driving performance across objectives; two, improving usability for advertisers and productivity for our sales force; and three, offering our advertisers Reddit unique solutions and ad formats. We made meaningful progress against each of these areas in Q2. First, ongoing investments in our ad models and formats are driving performance improvements, including higher click and conversion volume and incremental return on ad spend. Our shopping solution, Dynamic Product Ads or DPA, is now generally available after a successful beta that delivered strong performance across verticals. Reddit advertisers are integrating DPA into their full-funnel strategies as an always-on lever and consistently achieving a return on ad spend that is on average 2x higher than standard conversion campaigns. Growing adoption of our measurement tools, including our conversion API, is strengthening our lower funnel strategy with CAPI covered conversion revenue tripling year-over-year in Q2. Second, improving usability for our advertisers and productivity for our sales force. We’re continuing to enable advertisers to activate Reddit campaigns through connections into third-party tools used for multi-channel strategies. Our new Smartly integration that launched to all advertisers in Q2 combines Reddit audience and performance with Smartly's AI-powered advertising platform. This makes it easier for advertisers to launch, scale, and optimize Reddit campaigns, including DPA. Third, building Reddit unique solutions and ad formats. We're excited to introduce our trademark Reddit Community Intelligence at the Cannes Lions Conference in June. Reddit Community Intelligence is the collective knowledge from the billions of human conversations across Reddit. It powers our ads and insights products to help marketers drive performance and make more informed business decisions. Two early-stage products demonstrate its value and potential: Reddit Insights for agencies and an AI-powered listing tool that uncovers strategic value from two decades of Reddit conversations. For example, what people think about a brand, product, service, and its position relative to competitors, offering real-time insights for campaign strategy, creative testing, and better decision-making. And Conversation Summary Add-Ons, an ad feature that integrates positive Reddit user conversations directly into ads, allowing people to see what communities think about a product or brand. So far, this new ad format is delivering over 10% higher click-through rates than standard image ads. Finally, to support businesses with building an organic presence on Reddit, we continue to enhance Reddit Pro with new profile tools. Now businesses can use AI tools to more easily generate profile bios and cross-post community discussions directly from Reddit Pro to build their presence and connect with Reddit's 100,000-plus communities. When official brands and entities advertise and engage on Reddit, it not only improves the Reddit experience for users, but it also makes advertisers and businesses more successful. Overall, Q2 was another strong quarter for Reddit. I'm proud of the progress and the improvements we're delivering for our communities and advertising partners. Reddit has never felt more essential to people and businesses, and we believe there's a lot of opportunity ahead. Now I'll turn the call over to Drew.

Thank you, Jen, and good afternoon, everyone. Our strong second quarter results demonstrated that our financial model continues to perform exceptionally well at Reddit. The primary driver this quarter was our revenue, which increased by 78%, marking the highest growth in over three years and contributing to new records in net income and adjusted EBITDA. We executed effectively across our five financial strategies, and the results are evident. These strategies involve: first, differentiated revenue growth. Our revenues reached $500 million, exceeding our previous record by over $70 million. We saw a 78% increase in revenues during Q2, which accelerated 17% sequentially, well above our competitors. Second, profitable scaling. Adjusted EBITDA reached $167 million in Q2, while GAAP net income amounted to $89 million. We achieved a balance this quarter with both revenue growth and profitability, resulting in a combined revenue growth rate and adjusted EBITDA margin of 111%, a new high for us. Third, we expanded margins. Our adjusted EBITDA margin hit 33%, up over 1,900 basis points year-over-year, and the net income margin was 18%, a significant improvement from a loss last year. On the product side, gross margins increased by 130 basis points to 90.8%, marking our fourth consecutive quarter above 90%. Fourth, we generated positive cash flow. Free cash flow for Q2 ended at $111 million, with a free cash flow margin of 22% of revenue. For the first two quarters, our free cash flow totaled $237 million. Lastly, we minimized dilution. This quarter, we made our annual employee grants, resulting in a modest increase of 575,000 shares to 206.6 million shares, with total dilution rising by less than a negligible amount year-to-date. Allow me to provide additional details on these highlights. First, our Q2 revenue of $500 million was fueled by advertising revenue, which grew by 84% year-over-year to $465 million, demonstrating growing traction across various objectives, verticals, geographies, and channels. Other revenue, which includes our data licensing business, reached $35 million, growing 24% year-over-year. Average Revenue Per User (ARPU) grew 47% year-over-year to $4.53, which still presents an opportunity as it's relatively low on an absolute basis. Regionally, revenues grew 79% and 71% year-over-year in the U.S. and internationally, respectively, with Europe performing strongly, especially in England, the Netherlands, and France. Four key revenue drivers contributed to our growth this quarter. First, both performance and brand ads experienced robust quarters, with each growing over 80% year-over-year. Second, while impression growth continued to drive our numbers, we also benefitted from favorable pricing trends that began in Q1 and gained momentum in Q2 as we offered value and positive outcomes to advertisers. Third, we observed strong performance across the sales funnel, with growth ranging from high double digits to low triple digits in the upper, mid, and lower segments. Lastly, we witnessed diversified strength across verticals, with nine of our top 15 verticals achieving revenue growth of 75% or more. Regarding our costs, total adjusted expenses were $333 million, representing a 38% year-over-year increase. This rise is faster than we observed the previous year and is reflective of two factors: higher variable costs associated with increasing revenues from areas like hosting, sales commissions, and incentives, alongside our strategic investments. Over the last few quarters, we've been focusing our investments on sales and search/ML, and this quarter, we initiated a new investment in marketing. Let me elaborate on each area. First, our total headcount increased by 17% year-over-year, adding about 100 people sequentially, with 70% of these new hires in consumer-facing roles like sales, marketing, and ad technology. Historically, such investments have been pivotal in driving our revenue acceleration over the last several quarters. Second, we are making ongoing investments in the cost of revenue, driven by new machine learning features for our consumer and ad platforms, enhancing search capabilities, and optimizing site speed and performance. Third, during Q2, we began testing our marketing expenditures aimed at achieving several global objectives. These spends were both strategic and tactical, targeting top-of-funnel brand awareness as well as lower-funnel performance outcomes in both U.S. and international markets. Total investment costs for this quarter were a few percentage points of Q2 revenues, and we plan to continue these investments throughout the second half of the year, adjusting spending based on traction, user retention, and investment returns. Our strong business model enables us to invest in new areas like marketing while still achieving profitable growth. Our incremental adjusted EBITDA margins stood at 58% for the quarter, well above our long-term target of 50%. A few additional notes on the numbers: our CapEx for Q2 was $500,000, totaling less than $2 million year-to-date, keeping operating and free cash flow aligned. Cash and investments surpassed $2 billion for the first time, ending at $2.06 billion, a sequential increase of $109 million, which is encouraging. Stock-based compensation and related taxes decreased sequentially from $107 million to $95 million, now under 20% of revenue. Year-to-date, stock-based compensation is 23% of revenue, aligning well with our peers. We continue to categorize this as a cost and are pleased to see some leverage in Q2. Our net income was $89 million, equating to $0.48 per basic share and $0.45 per diluted share, a marked improvement from a loss per share last year. As we look ahead, we will share our internal estimates for revenue and adjusted EBITDA for the third quarter, which is where we have the highest visibility. For the third quarter of 2025, we anticipate revenue between $535 million and $545 million, indicating a year-over-year growth of 54% to 56%, with a midpoint around 55%. We expect adjusted EBITDA to be in the range of $185 million to $195 million, illustrating a year-over-year growth of approximately 100% to 110%, with an adjusted EBITDA margin of 35% at the midpoint. In summary, it’s encouraging to see Reddit’s distinct business model delivering strong results again. We experienced substantial leverage and cash flow generation during the first half of the year, driven by differentiated revenue growth, healthy gross margins, and low capital expenditures. Following a successful first and second quarter, we now shift our focus to the crucial second half of the year. That concludes my remarks, and I will now hand the call back to Steve.

Thanks, Drew. Thanks, Jen. As usual, we're going to start with a few questions from the Reddit community asked on r/RDDT, and I'll do those now. First question: What is one memorable discussion you had at the Cannes Lions festival? There were a couple. We demoed our new Community Insights product. I mentioned one in the script, where an advertiser got an idea on the spot for a potential Super Bowl ad next year, which was really cool. And then we had another customer realizing they had an entire customer segment that they were previously unaware of, showing a huge opportunity there. I was at dinner and sat next to an ad agency executive, and he was just raving about the quality of our team, how much he loves working with our folks, which is just really nice to hear. A lot of our people come from other agencies and many of our competitors. So it's nice to see what a great reputation we're building for our company. Finally, I also got to chat with Rick Astley, the author of the song "Never Gonna Give You Up" from back in the '80s, popularized by Reddit as the Rickroll, one of the first memes on Reddit. It was really interesting to hear how grateful he was for the second act of his career being a part of that. Second question: You mentioned that you want to deprioritize the user economy in favor of some more pressing projects. What projects are these? And are they focused more on user engagement, getting new users, or increasing ARPU? It's essentially the first two: improving user engagement through core app improvements, onboarding, and relevance. I think that's just the most pressing need right now; diversifying the top of funnel sources of traffic for Reddit and making sure that the product supports new users with more relevant content in every geography. Right now, they more or less see kind of the same feed. I believe there's a lot to gain by making a more relevant, intuitive first-time user experience. Third question: Have you ever played Flappy Goose? The context here is Flappy Goose is a user-created game on our developer platform. It's one of the more popular games, and I have played it. It's too hard! I can only survive a second because a cult following has emerged around this game to make the hardest levels possible, which itself might be a metaphor for all of Reddit. Consider this a feature request for easier levels for beginners. What makes me excited about this is seeing deep engagement on something like this. I think it's one of the early signs of success that we've been looking for—users going really, really deep on something that they created, and we would have never created. So I'm excited to see that. Okay, now I'll turn it over to the professionals for their questions.

Great. Thanks, Steve. Christa, let's please open the line and take some questions from folks on the line.

Your first question comes from Brian Nowak with Morgan Stanley.

Maybe two. The first one, Steve, is on U.S. user trends. It seems like things may have gotten better throughout the second quarter. Maybe talk to us about what you are seeing in the U.S. user trends throughout Q2 and then sort of importantly, into Q3, what's going on in the U.S. user base and what's driven the improvement? The second question is for Jen. The ad business is doing incredible. Talk to us about some of the innovations you're most excited about in the back half to sort of continue to deliver more ROAS and scaling up of ad buys across your advertiser base?

Thanks, Brian. Okay. In Q2, as we mentioned on the last call, we got off to a slower start in April. We saw better traction as the quarter played out. A combination of intentional work on the product side and marketing and user acquisition all benefited. Traffic from Google varies from week to week, but overall, it was a headwind in Q2. However, looking into Q3, our Q2 exit number was higher than the Q2 average of 110 million. In July, we added DAUs in both the U.S. and internationally. We'll see how the rest of the quarter plays out. Our primary focus remains on strategy and the product roadmap. Jen has started working with me directly on the product, and it's been great across both dimensions. She's bringing interesting ideas on the product roadmap and adding a particular focus on user growth execution. Jen, the second question was for you.

Thanks, Brian. There’s a lot to be excited about in our roadmap. Some of it is the things we've launched, say, in Q2, which I think we will be able to deploy more broadly in go-to-market. So DPA, Dynamic Product Ads, which is basically shopping. I think we're really excited about that; we're at the beginning of that roadmap, but advertisers are seeing a really nice return on ad spend. There's a lot more adoption there. There's some more work in automation; we released auto-bidding, we talked about some of the results in auto-bidding, but just more around automation throughout our platform. We’ve integrated Memorable AI into our upfront part around creative. I'm really excited about some of the automation that will make it easier to onboard advertisers and can drive performance. Finally, again, the things that we mentioned at Cannes—the trademark Community Intelligence with these two initial products, Reddit Insights and Community add-ons—are just early. We've just gotten them out the door, and I think they've been very well received. I’m excited to see more broad-based adoption and impact from them.

Your next question comes from the line of Ron Josey with Citi.

One for you, Steve, and one for you, Jen. Steve, I wanted to touch a little bit more on search, just given Reddit increasingly becoming an LLM search engine. In the letter, you talked about search becoming more central. I wanted to hear more of your thoughts on Answers now that it's rolling out globally and potentially becoming more central to the experience. Talk just about the plans to build out Answers as the search experience on Reddit. And then Jen, maybe a higher-level question, but with advertising up 84%, active advertiser count growing 50% plus, I would love to hear how your relationships or just the relationships overall with advertisers have evolved over the last year or so, from then until now.

Thanks, Ron. So on your first question about Answers, that’s kind of our LLM search product. Our focus right now is on unifying Reddit search—like traditional search on Reddit, which is very widely used—and the new Reddit Answers product, which answers objective questions across the entire Reddit Corpus. So we are unifying those into a single search experience, and we’re going to bring that front and center in the app. So whether you're a new user opening the app for the first time or a returning user opening the app, that search box will be present immediately for users opening the app looking for something specific. We call those seekers. Sometimes they're opening the app to consume Reddit; we call them scrollers. Bringing that seeker experience to the front and center in the app will enhance both the use cases of Reddit. This is under heavy development for us right now, and we hope to get that out before too long into the hands of users, so we’re excited about that unification. I think it will capture both use cases of Reddit on that first screen. Jen, over to you for that second question about advertising relationships.

Sure. We’ve been growing our active advertiser base really nicely, but most of our growth still comes from existing advertisers who are well retained and having a great experience. A few things: Some of our larger customers, we actually created a global accounts team because they want to work with us on a larger global scale. We want to service them in a very global way so they can see the reach they can get across many countries. We’ve actually changed how we service some of these top accounts, which is really exciting. It's a normal evolution as you get deeper and bigger relationships. The next is we’re seeing demand in market, and some advertisers want us to plug into some of the third-party ecosystem pieces they use, which can unleash more demand and take out more friction. For example, our Smartly partnership allows us to plug into the advertising ecosystem on behalf of demand from our customers, making it easier for them to access Reddit ads and launch campaigns. The third thing I’ll mention is I’m really pleased to see that many more advertisers are working with us across the funnel, across multiple objectives. I think that's really exciting to see. That’s how you get the best of Reddit.

Your next question comes from the line of Benjamin Black with Deutsche Bank.

Great. Steve, you highlighted being the most cited domain on the Internet for LLM models. How is that translating into user trends? How is that evolving your thoughts around the data licensing opportunity, just given the fact that your partners appear to be really benefiting from Reddit content? On the marketing strategy, what were the key learnings so far? Can you talk about the characteristics you're seeing in the new users you're onboarding? Is there any difference in engagement or retention rates, for instance?

Thanks, Ben. One of the things we've learned, particularly through the data licensing deals, is not just we that have learned this, but I think both our partners there and just folks on the Internet more broadly, is how essential Reddit is to AI or LLMs as we know them and the next generation of search. A lot has changed over the last couple of years. Every variable has changed since we signed those first deals. Our Corpus is bigger, more distinct, and essential. We believe Reddit is in a really good strategic position as a result of this. On our own products, we’re seeing that the Corpus is deeper and broader than we realized before we built Reddit Answers. We see a huge opportunity to provide users really kind of broad and varied viewpoints on subjective questions, which I think is an important category of questions on the Internet. So I think a lot of opportunities here. We’ll continue to develop. But if the future is anything like the past couple of years, many opportunities will be created. Jen, the second question was key learnings from our marketing efforts.

Sure, I'm happy to take that. It’s very early; we're just building this capability and starting to do some initial testing. But I'll share a couple of thoughts. Especially outside of the U.S., I think our awareness and consideration are an opportunity. We want to invest in that. That's why you heard a little about the investments around awareness and consideration because the foundation we have in English markets in the U.S. is a little different outside of that territory. We did a brand campaign in France, and I think it revealed to us that the product is getting better in terms of the content and this machine-translated immersive experience—where you come in the front door is better. We’re getting positive feedback from that. Still more to be done, but it’s nice to see the progress there. Finally, we're on this journey of building a Reddit unique search experience. A lot of people type in Reddit in search, but the process of using Reddit Search will be a new motion coming directly. We’re doing work now to integrate search throughout our products and will want to invest in marketing to remind people to search on Reddit, creating that new behavior. Those are the kinds of things we want to put marketing behind.

Your next question comes from the line of Tom Champion with Piper Sandler.

Maybe for Steve or Jen. Just any comment on engagement and time spent? Your peer who reported last night appears to be making very nice time spent gains with greater personalization and leveraging ML models. Just curious what you're seeing on that front. For Drew, to pick up on the marketing comment in another direction, it looks like a pretty solid step-up in sales and marketing spend, quarter-on-quarter from Q1 into Q2. Just curious if that step-up—from roughly $90 million to $120 million—is driven by the outbound traffic-related marketing campaigns or any other factors driving that sequential increase?

Sure. Thanks, Tom. So on engagement and time spent, both continue to be solid. I think my answer here is the obvious things and probably aligns with what anybody in this business would say: relevance equals retention, and retention equals growth. So that's a core focus of ours. I think this is what I was referring to in my script and my answer to the community question. I think as a user logs into Reddit and uses Reddit more and more, it becomes more personalized and relevant, and then engagement deepens quite significantly over time. Even measured in years, users subscribe to more subreddits and spend more time on Reddit. Our work is to get more of that. What we're building towards this year is to make the product personalize instantly, removing as many barriers as we can for new users to start finding their home on Reddit. Today, we have a heavy-handed onboarding approach. A user opens the app and faces many questions about their interests. We want to move to something much simpler—like a search box so users can tell us what they're into. They may receive a Reddit Answers guide to Reddit's relevant parts or a feed that starts off personalized, specific to the context they came from. All these things we're working on now, and I think we'll have meaningful improvements.

Yes. The cost growth here in the last couple of quarters has been growing in the high teens. In the second quarter, it grew about 38%. The drivers behind that acceleration are threefold. One is that the top line here was a big number, so we have variable costs in our business, that's the biggest driver. The second piece is hiring; we hired over 100 people sequentially in the quarter. That will be a cost driver. The third piece on the sales and marketing side, which is really the spirit of your question, is it equated to a few percentage points of revenue. On a $500 million base in the quarter, that was a low double-digit million spend. In terms of where we're going, as Jen said, we’re doing a lot of work to determine the right investment to make here. We will view costs by market, and depending on user traction, we could modulate our costs. That’s how we're thinking about things going into the third quarter.

Your next question comes from the line of Mark Shmulik with Bernstein Research.

I appreciate the color in the shareholder letter about the weekly basis, the 50 million scrollers and 60 million seekers. Curious how you think about that mix shift going forward? Should we be looking for a similar mix or kind of a focus area on one versus the other? A second question just on search: The 70 million weekly users. As you think about the cohorts or vintages of search behavior, particularly with Reddit Answers, is it kind of those early users that you're seeing a lot more usage of, or is it really the broadening out of incremental users using the new Reddit Answers product?

Thanks, Mark. So on the mix shift of scrollers and seekers, we don't have a, I think, preference of the mix of those over the long term. What we would actually expect is for a single user to be both on a single day. In fact, I think for most of our users, this is already true—whether they're running a search on Reddit directly or using a third-party search product and coming to Reddit, which is just about anybody using Google at this point. I think those users also can be core Reddit users. It’s not a stretch to say our core users are already scrollers and seekers, and I think they may open the app with either of those use cases in mind. We want to service both of those use cases as effectively as possible. So I suppose my answer should be that I would expect it to be balanced. External search will continue to be a big driver of new users, but both use cases are essential to Reddit. Regarding the 70 million weekly users running search on Reddit today, Reddit Answers is basically a second product from the core Reddit Search. It currently resides in the navigation area of the app. We believe it's vital to merge those two. You’ll hear us in coming quarters talk less about Reddit Answers as a product and more about it as a capability integrated throughout the product. So, for instance, outside the search bar, we can integrate the Answers capability wherever we might present a list of links.

Your next question comes from the line of Doug Anmuth with JPMorgan.

This is Maggie on for Doug. I was curious about any early learnings you can share from testing Reddit Lite internationally, both from an engagement perspective and just your view on the opportunity to better monetize that user interface and how you're thinking about a broader rollout.

Sure. Reddit Lite was basically a rebuild of the core app experience that we tested internationally. Our learnings indicate that making the app easier and more visually appealing leads to positive user experiences. Our main focus now is on bringing those UI improvements to mass market, including the U.S., as quickly as possible. Within Reddit Lite, we tested simpler posts, a more unified post view, and streamlined core interactions from the feed to the comments and back. We saw what we needed to see from that test; these are good initiatives, and now we want to incorporate them into the core app as soon as possible.

Your next question comes from the line of Rich Greenfield with LightShed Partners.

The NFL decided that keeping Sunday Ticket exclusive was more valuable versus licensing it to multiple platforms. I'm wondering, Steve, as you talk about the value or unique value and growing value of Reddit data in an LLM, Gen AI world, is there a world where we could imagine Reddit data being licensed to one LLM only and blocking access to all others, and maybe even incorporating traffic guarantees to ensure that the LLM we work with doesn't impact traffic to Reddit over the long term? I'd love your reaction to how you think about that dynamic.

Thanks, Rich. I think it's too soon to say what the shape of future partnerships will look like. What we've learned since we started those deals is that the Reddit Corpus is essential and appears to be growing in importance to some of the largest players on the Internet. This puts us in a strong strategic position. Everyone can see that Reddit data is very valuable. But we're still learning how much folks depend on our data and what they use it for. I think we need more time to answer these questions in terms of what future structures might look like. For now, it's about continuing to learn on the partnership side while also building the best products we can on our Corpus, and we'll see how that develops over the next couple of years.

Your next question comes from the line of Jason Helfstein with Oppenheimer.

Two kind of Google-related questions: One, we saw some of our Google testing expanded in more discussions in forum results. Can you share any thoughts on that? It would seem like that could be a positive for you. And then second, any comments on how you think AI mode impacts or can drive traffic to Reddit, if AI mode was to become a default versus AIO reviews?

Yes, Google is testing lots on our side. Their product is evolving rapidly. This affects everybody in the ecosystem, and I think you're correct that we've seen both pros and cons from this. However, a couple of foundational points remain the same. One is that the Reddit Corpus is really important to these products and necessary for users more broadly, which is why 'Reddit' is one of the most searched for terms on Google. Users around the Internet go to Google with the intention of ending up on Reddit. As I see it, the natural approach is to provide what the user seeks. So we expect to see more product development in that direction. As long as the Reddit Corpus continues to grow, users will continue to seek it out by name, benefiting us in the long-run. My response to your second question is comparable: How does AI mode impact traffic? Users want the Reddit perspective, so as long as this holds true, it’s a beneficial situation. Regardless of how they arrive, our role is to help Internet consumers find the kind of answers to their questions, which will help convert those users into core Reddit users, both the seekers and the scrollers. There's a lot of movement here, but I think it creates a net opportunity us.

Your next question comes from the line of Andrew Boone with Citizens.

Steve, in your letter and prepared remarks, you talked about reaching self-sustaining international markets. Can you talk a little about where you are in that progress and what else you guys need to do to really unlock the international opportunity? And then, Jen, I think the second quarter was 50% growth of your advertiser base. Can you talk about just the product roadmap to ensure that you continue to widen the breadth of your ad auction?

Thanks, Andrew. So internationally, everything we've mentioned on the call so far applies, but having a product that delivers value to users immediately in their first session—so the search experience, relevance of personalization—is key. With internationalization, we still need to develop the content base to support this as well. In the short and medium term, we’re using machine translation of predominantly English Corpus to do that, and that’s going well. We want to see local communities created by local users too. To facilitate this, we’re doing a lot of moderator outreach and making moderation much easier. With AI and LLMs, we can help there significantly. We’re building out more tools for moderator recruitment, allowing users to recruit more mods to their communities and help them get off the ground more quickly. The personalization aspect can bring relevant content to users—not just for new users but also as the main way to discover new communities. As personalization becomes faster and more effective, new users will be able to discover new communities at a quicker pace. Each one of these aspects comes together to grow internationally: product quality, community moderation, and community discovery to get everything off the ground.

Yes, the question was around just continuing to grow the active advertiser base and what it takes in the roadmap. There are many more advertisers that can be on Reddit, especially large logos in portfolios. Our direct team is focused on building those relationships. Many more are in the scaled segment in mid-market and SMB. Smaller businesses require ease of use. They need very simple automation that delivers the performance they need. We're working on automation; we're what I would call semi-automated in several key modules, including performance; however, we are not yet end-to-end automated. That’s something we're working on for each module. End-to-end automation is on our radar as something important, especially for smaller advertisers. The second aspect is once you have that capability; we have to build an effective raw acquisition engine and a marketing strategy to acquire those advertisers. We’re well aware that small businesses often come with no or minimal creative—they need augmentation. Gen AI platforms will help us do that. We need to build and integrate that into our ad platform. We're on that journey; it's on our radar, but those aspects need to come together to create a large scale of active advertisers.

Your next question comes from the line of Brad Erickson with RBC Capital Markets.

I guess first, just how do you think you're doing in terms of where you are in the evolution of how you grow compared to other social channels? In cases where you are winning a lot of these incremental dollars, do you feel like you're securing brand new budget from these advertisers, or is it coming from other platforms? That's my first one. The second one: You mentioned the new business profile sign-ups picking up. Is it fair to assume that you're converting some of those profiles into ad customers? Generally, how fruitful of a channel do you think that can be over time?

Sure. Where customers share ROAS, we're consistently benchmarking ourselves. We are getting better and more competitive; advertisers are seeing the results. It's very definitive based on return on ad spend or your CPA. The growth we’ve seen in that objective is directly an output of the performance people are seeing in our increased competitiveness. Regarding budget, I think overall in the market, there's consolidation happening when advertisers see performance. They will consolidate around that and move budgets toward it. So it could be both. The market is also growing, and that's an opportunity for us as a platform, so both are present. Reddit Pro is still early in its life, but one thing we really like is we’re gaining businesses asking how they engage on Reddit, both in paid marketing and organic ways. Together, we find this very important. More businesses are joining Reddit Pro, and we’re building connections between those who have signed up for Reddit Pro and our ads manager. An early example: we have a product that allows organic posts to be boosted in the ads manager. The insights from Reddit Pro help give you early indications on where to boost that and where the resonance might be. We’re early in building those connections, but we do see the opportunity to convert from one channel to the other.

Christa, it looks like we're bumping up against time here. We're going to wrap the call. I want to thank everyone for joining. We appreciate it and look forward to speaking to you all again soon.

This concludes Reddit's Second Quarter 2025 Earnings Call. You may now disconnect.