Earnings Call Transcript - RDDT Q1 2025

Operator, Operator

And I will be your conference operator today. At this time, I would like to welcome everyone to Reddit's Q1 2025 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 conference call over to Jesse Rose, Head of Investor Relations. You may begin your conference.

Jesse Rose, Head of Investor Relations

Thanks Kelvin. Thank you and good afternoon, everyone. Welcome to Reddit's first quarter 2025 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, and 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 first quarter letter to shareholders and accompanying earnings press release are available on our Investor Relations website, investor.redditinc.com and Investor Relations' subreddit, r/RDDT. And now I'll turn the call over to Steve.

Steve Huffman, CEO

Hi everyone. Thank you for joining our Q1 earnings call. Next month, Reddit turns 20. That's two decades of building something special on the Internet, a user-powered platform where you can be your honest self and connect over topics you care most about, whether popular, niche or personal. We've endured a lot of change over the years: the rise of smartphones, social media, and now AI, a global pandemic, and countless trends in how people connect online. But one thing has always held true: the world needs community and shared knowledge, and that's what we do best. Millions of people have contributed to Reddit being the eclectic and thriving place it is today, and as a result, we have over 100,000 enduring communities. Twenty years after our founding, we still have many opportunities and much to do. We took a big step forward last year, becoming a public company, and I think we delivered strong results in our first year. We carried that momentum into 2025 with another solid quarter of growth and profitability. Revenue was $392 million, up 61% year-over-year, marking our third consecutive quarter of growth over 60%. We ended the quarter with 401 million weekly and 108 million daily users, both up 31% year-over-year, and we continue to scale efficiently while investing in the future. There's a lot to be excited about as we make progress on our core product and ad business, and we look forward to walking you through those updates today. Ever-shifting macro environments like these create both challenges and opportunities. We've grown through challenging times before. People need connection and information, and those needs shift as much in uncertain times, and we're well-positioned to meet this moment. Our unique advantage is that people come to Reddit with intent. They're not just scrolling; they're also seeking. They come to Reddit for real opinions from real people. When you ask a question online today, whether it's about a product, decision, or life choice, you're not looking for generic answers or sanitized summaries. You're looking for lived experiences and personal recommendations, which is why Reddit is the number one platform for finding possible solutions to people's needs or situations. And it's where half of all product conversations online take place. For seekers, Reddit's open nature is essential. It allows our content to surface across the open web and be easily found in search. We remain one of the last major platforms that doesn't require you to sign in to learn something because we believe that by giving everyone access to knowledge, we are helping fulfill the purpose of the Internet. This openness broadens visibility, drives awareness, and brings us new users. But it also means that some of our traffic from external sources is variable. Ultimately, short-term shifts don't affect our long-term strategy or opportunity. We control our own destiny. On the core product side, we're focused on making it a seamless experience to create, contribute to, and discover communities. Here’s how we’re realizing that vision through our product roadmap. First, we are using search to help people find what they're looking for on Reddit. Search will help new users opening the app for the first time find their home on Reddit and will help visitors from external search find the answers they're looking for. We're upgrading Reddit search and better integrating it throughout our product. Reddit Answers, our version of AI search, has reached 1 million weekly users. Last month, we began its global expansion, beginning with Australia and the U.K. We are now working to integrate it into Reddit's core search experience to further streamline the path from question to answer on Reddit. Next, we are becoming a truly global platform by growing outside of the U.S.; machine translation is now available in 13 languages with more on the way. The focus markets where we've implemented our international playbook, including France, Spain, and Brazil, are growing nearly twice as fast as total international users. For us, internationalization isn't just a way to grow; it's essential to our mission of providing community and knowledge to everyone in the world. Finally, we are making Reddit more fun and easy to use. We're continuing to make it simpler and easier to contribute to communities. In March, we released a set of tools to streamline the contribution process for users, including posting comment guidance, which provides real-time suggestions to improve your post, post insights, and community suggestions. These improvements not only help users but also meaningfully reduce the burden on moderators as the content people contribute is of higher quality and better aligned with community rules. We also have 400,000 people playing games and other interactive experiences built on our developer platform in Q1, showing that interactive experiences can thrive on Reddit, and we have more big ideas to drive engagement and premium content, which will roll out later this year. None of this happens without our communities. They are the heart of Reddit. From our Minecraft community to our Witchcraft community to our CraftBeer community, every subreddit is a world of its own, built by the people who use it. This unique community model isn’t just our history; it’s our future. We're not looking to imitate any other platform. We're looking to make Reddit the best version of Reddit by being faster, easier, and better to use. On Reddit, it's not about perfection. It's about participation—it's not about broadcasting but belonging. That's why, 20 years in, we're still growing, still resonating, and still real proudly. Thanks again for being with us on this journey. I'll now hand it over to our COO, Jen Wong.

Jennifer Wong, COO

Thanks Steve. Hello everyone. It was another strong quarter and a good start to the year for Reddit. We continued our momentum from last year and grew total revenue 61% year-over-year to $392 million in Q1. Our unique proposition and core platform improvements continue to drive differentiated growth and positive outcomes for advertisers. In Q1, the advertising business grew 61% year-over-year to $359 million, driven by broad-based strength across objectives, channels, verticals, and geographies. Let me discuss our ad revenue drivers. Our strategy is to be a multi-objective ads platform. In Q1, we continued to see growth across all objectives. Top of the funnel brand objectives accounted for about 40% of total ad revenue, consistent with prior quarters. Mid and lower funnel performance revenue accounted for about 60% of total ad revenue and was a major growth driver in the quarter. Across channels, our scaled business, which includes mid-market and SMB advertisers, continues to be a revenue and active advertiser growth driver. The total number of active advertisers, including large, mid-market, and SMB, grew over 50% year-over-year in Q1. We saw broad growth across verticals, with 10 of our top 15 verticals growing over 50% year-over-year, led by pharma, retail, auto, telecom, and finance categories. Across geographies, U.S. ad revenue grew 56% year-over-year and international ad revenue grew 83% year-over-year, the fastest growth rate in three years. For impressions in pricing, ad revenue was driven by year-over-year growth in impressions from underlying user growth, ongoing smart ad load work, increases in engagement, and improved monetization of the conversation page. The ads and comments placement contributed about 6% of impressions in the quarter, and we're seeing healthy advertiser adoption and performance outcomes with this placement. Ad pricing was up year-over-year. We are delivering more valuable impressions, and advertisers are benefiting from efficiency improvements. Now, moving to our ad stack. We're focused on three things: driving performance across objectives, improving usability for our advertisers and productivity for our sales force, and offering our advertisers ready-to-use unique solutions and ad formats. We made meaningful progress against each of these areas in Q1. First, driving performance of our ad solutions. The lower funnel investments that we delivered last year, including ML optimization, mezzanine adoption, and format optimization continue to drive positive outcomes and performance. In Q1, we delivered more outcomes to advertisers through meaningful year-over-year increases in conversion and click volume. We improved our ML optimization models and enhanced signal fidelity for our first-party pixel to improve tracking accuracy. We're encouraged with our progress driving adoption of our measurement tools, including our pixel and conversion API, CAPI. Lower funnel conversion revenue covered by CAPI tripled year-over-year in Q1. Over 90% of our managed advertisers have adopted our pixel, and we recently launched an integration between our Pixel and Google Tag Manager, enabling easier adoption for new customers. On format, we're excited about the progress-to-date with our shopping ad unit, Dynamic Product Ads, or DPA, which is currently in beta testing. In the quarter, we improved our DPA format in two areas: performance and ease of use, and we're excited about the roadmap for the rest of the year. We're continuing to deploy conversion and click prediction model improvements, enabling advertisers to onboard larger product catalogs with millions of products to deliver more relevant ads. In Q1, DPAs delivered an average of over 90% higher ROAs compared to campaigns from last year. Now, second, improving usability for our advertisers and productivity for our sales force. We launched IAS brand safety and viewability in Q1, providing advertisers post-campaign measurement in addition to our pre-bid integration that we launched last year. We also invested in AI enhancements for our sales teams that enabled them to 10x the number of insights reports that inform campaign decisions and saw substantially higher revenue for campaigns with these insights. Third, offering advertisers unique solutions and formats. We're leveraging Reddit's community intelligence, including insights and signals from real conversations about almost every product and service to help businesses inform their strategy, learn more about their customers, and drive more performance. We've also launched enhancements to our upper funnel offerings. In Q1, we began a series of upgrades to our premium takeover ad products to simplify the sales process and drive more value for advertisers globally. Specifically for category takeovers, which allow advertisers to own placements for contextually relevant communities, we're testing a more visually impactful format and elevated placement, and we'll be working on more enhancements in this area in the coming quarters. Coming off of our launch in Q4 of Reddit Pro trend, the number of companies using Reddit Pro grew over 2x from Q4 with healthy engagement around the tool set. Overall, I'm proud of our progress, and there's a lot to be excited about. Reddit is a differentiated platform and company, and we believe we are well-positioned with our roadmap and go-to-market strategy to continue making more businesses successful on Reddit. Now I'll turn the call over to Drew.

Andrew Vollero, CFO

Thank you, Jen, and good afternoon everyone. Q1 was a solid start to the year for Reddit, with strong results quite similar to each quarter since becoming a public company last year. Building on that thought, Q1 revenues were up 61%, consistent with revenue growth for the prior four quarters, which has averaged about 60%. Similarly, Q1 total adjusted costs were up 19%, consistent with the second half of 2024, where adjusted costs grew about 20%. The financial performance for Q1 was again defined by the five financial strategies that have been consistent over the past several quarters, highlighted by the company's solid fundamentals and scalable model. These headlines include: 1) differentiated revenue growth. In Q1, we delivered strong growth of 61% despite the tougher comps, well above most peers. 2) scaling profitably. Adjusted EBITDA hit $115 million in Q1, and GAAP net income reached $26 million. That's good progress to achieving GAAP profitability in our historically slowest seasonal quarter of the year. We're also now GAAP profitable on a trailing 12-month basis. 3) expanding margins. Adjusted EBITDA margin reached 29%, up over 2,500 basis points year-over-year, and the net income margin was 7%, up from a loss last year. Our incremental adjusted EBITDA margin was over 70% for the fifth consecutive quarter. On the product side, gross margins expanded by 190 basis points to 90.5%. 4) generating positive cash flow. Operating cash flow exceeded $100 million for the first quarter, ending at $128 million, our highest ever, and our operating cash flow margin was 33% of revenue. 5) minimizing dilution. Total diluted shares fell again sequentially to 206 million in Q1 as we continue to thoughtfully manage our share count. I'll provide a bit more color on these headlines. First, total revenue of $392 million was driven by our advertising revenue, which grew 61% year-over-year to $359 million and continues to scale rapidly across channels, verticals, and geographies. Other revenue, which includes revenue from our data license business, reached $34 million, growing 66% year-over-year. Regionally, revenue grew 57% and 82% year-over-year in the U.S. and internationally, respectively. International revenue growth accelerated to the fastest growth in over three years, as we deepened and expanded our advertising relationships in important markets, including the U.K. and EMEA. In the quarter, we saw three encouraging revenue growth drivers. First, performance revenue drove more than half the dollar growth in the quarter. Second, our scale channel, including mid-market and SMB advertisers, was also a growth driver, contributing more than $0.5 growth in the quarter. And third, impressions continue to be the primary driver, consistent with other quarters. But new for this quarter, we also saw a nice tailwind from pricing in the quarter. We believe the gains in pricing reflect the progress from our investments in performance and targeting in the middle and lower funnel. We're delivering more clicks and conversions, which is driving more efficient ad spend and higher returns for our advertisers. Now, moving to costs. We continue to scale revenue as we continue to scale revenue, our investments are focused in two areas: hiring and technology. Hiring is focused on sales and engineering, primarily expanding customer coverage on the sales side; and for engineering, we're adding resources in ad tech, machine learning, and search. The traction from those investments has been strong, and we found a sweet spot where we have both accelerated revenue growth and kept high incremental adjusted EBITDA margins, well above our long-term target of 50%. In Q1, total adjusted cost growth was up 1% sequentially and 19% year-over-year, less than one-third of the rate of revenue growth. Cost of revenue remained efficient with gross margins exceeding 90% for Q1, up 190 basis points year-over-year. Gross margins benefited from incremental revenue growth and we saw lower contract pricing from our hosting providers from the new contracts we signed late last year. That said, we reinvested some of those savings back across many important areas such as supporting user and ad revenue growth, using more machine learning, scaling search, accelerating machine translation in international markets, and better optimizing our site speed and performance across the world. Operating expenses growth was consistent with prior quarters, up 17% as total headcount was up 13% year-over-year. We ended the quarter with slightly more than 2,300 people, up 3% sequentially. The G&A headcount was down 5% sequentially, reflecting our strategy to leverage back-office expenses. I noted on the fourth quarter call that we're focused on scaling profitably and turning differentiated revenue growth, high margins, and low CapEx into meaningful cash flow generation. We delivered on those dimensions in Q1. Free cash flow for Q1 was $127 million, 32% of revenue. Our CapEx remained light, less than one million dollars in the quarter. Cash and investments ended at $1.95 billion, up over $110 million sequentially. That's a healthy gain. SBC was $107 million, about 27% of revenue, down substantially versus the prior year, which reflects the catch-up SBC expense from the IPO. Net income was $26 million or $0.14 per basic share and $0.13 per diluted share. As we look ahead, we'll share our internal thoughts on revenue and adjusted EBITDA for the second quarter, which is where we have the greatest visibility. In the second quarter 2025, we estimate revenue in the range of $410 million to $430 million, representing 46% to 53% year-over-year revenue growth with a midpoint of about 50%. Adjusted EBITDA is estimated in the range of $110 million to $130 million, representing approximately 180% to 230% year-over-year growth. So it's good to see Reddit off to a strong start in 2025. Our financial goal remains to continue delivering consistent, strong, and differentiated performance. In the end, we'll measure that differentiated financial performance primarily with cash flow. That concludes my comments. Let me turn the call back over to Steve.

Steve Huffman, CEO

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

Jesse Rose, Head of Investor Relations

Great. Thanks, Steve, Jen, Drew. Kelvin, why don't we open up the line and take some questions from the folks on the line now? Thank you.

Operator, Operator

Thank you. Your first question comes from the line of Ron Josey of Citi. Please go ahead.

Ron Josey, Analyst

Great. Thanks for taking the question. I had two, please. First, Jen, I had a question for you on the advertising front. I know you mentioned broad-based strength earlier on the call. Talk just about what you're seeing currently from a macro perspective and how you see the ad market today and maybe how macro might impact the business? That's question one. And then Steve, I wanted to get your thought on DAUs and users overall, more specifically your sense and how you see user growth for the remainder of the year going forward? I ask you this only because I think we've seen two or so Google algorithm changes since December. Any thoughts on user base would be very helpful? Thank you.

Jennifer Wong, COO

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

Steve Huffman, CEO

All right. Thanks, Jen. Thanks, Ron, for the question. Users and Google. So look, we're happy with the start to the year. In Q1, we had 18 million daily users, 400 million weekly. That's 31% year-over-year. We believe we're in great shape over the medium and longer term. Ultimately, we drive growth when we make improvements to the product, which is where our focus is. Improvements like onboarding, search, and machine translation all drive growth over the long term. Remember, we're an open platform, and we want people to find Reddit's content in search. Being open drives awareness and visibility, but it can create variability. We do expect some bumps along the way from Google because we've already seen a few this year. This is expected in any year, but given that the search ecosystem is under heavy construction, the near term could be more bumpy than usual. To give you an early read on Q2 through the month of April, we're seeing total DAUs growing in the high teens range year-over-year. However, the short-term bumps don't affect our long-term strategy or opportunity. We're in control of our own destiny. And I think the question behind the question is, is there a long-term risk to Reddit here? My view is that the answer is no. In fact, I think there's opportunity. There's no doubt that LLM will evolve search on the Internet. We can all see that, and it's awesome. Sometimes people will want the summarized, annotated, sterile answers from AI, and we're even building this ourselves in Reddit Answers. But other times, they want the subjective, authentic, messy, multiple viewpoints that Reddit provides. In the same way that Reddit has been an alternative to social media, social media being performative and manicured, and Reddit being the opposite, Reddit communities and conversations will be an alternative to AI search answers. Furthermore, people want what Reddit has. When they search, they search for Reddit by name. In the last 90 days, the word 'Reddit' was the sixth most searched word on Google, indicating our position in the media landscape. The Google algorithm serves users what they want and what they ask for, and we've had a long and symbiotic relationship with Google. In summary, expect some bumps, but we expect to continue to improve the product and lay the foundation for more consistency in the back half of the year and beyond. Our opportunity remains huge, and our knowledge base is unparalleled.

Ron Josey, Analyst

Thanks.

Operator, Operator

Your next question comes from the line of Andrew Boone of JMP Securities. Please go ahead.

Andrew Boone, Analyst

Thanks very much for taking my questions. Jen, I wanted to ask about pricing, just given the fact that this is the first time this has really come through as a part of revenue growth. Can you speak to the drivers of that? And then stepping back, how do you think about pricing and maybe, as a large, compared to other platforms? Or is that not the right way to think about pricing as a formula of advertising at large? And then, Steve, in terms of Answers, it's great to see that Answers is now being tested in terms of the default search. Can you talk about that evolution and how you view Answers over time? Additionally, how are people actually asking questions about it today? And how do you view that evolving in the future? Thanks so much.

Jennifer Wong, COO

Sure, I'll take the first one on pricing. We don't see pricing as a direct optimization goal; it's more an outcome of supply and demand in the marketplace. The work we're doing is aimed at driving more clicks, conversions, and app installs, which makes each impression more valuable. We've been consistently delivering more outcomes to our advertisers, and more advertisers are using those objectives to achieve the outcomes they want. So when advertisers can find the outcomes they want at the prices they want, they can continue to spend. We're seeing a combination of pricing being an output of more demand in the marketplace and the value of impressions from the increased outcomes we're delivering. In comparison to peers, it's sometimes hard to gauge because our advertisers find us competitive. We've made progress there and are able to deliver market-competitive outcomes on a cost-per-acquisition basis or cost-per-click basis. So, I think we are positioned well competitively across various customer needs. I also think there's a balance to be struck with scale. Our optimization is not solely focused on pricing; it's an output of the marketplace. We are encouraged by the movement in pricing, and we want to be consistent in delivering outcomes for customers at a certain level.

Steve Huffman, CEO

Okay, on Answers. So, for context, we built Answers relatively quickly and integrated it into the app. Today, it lives in the navigation bar as its own separate experience. Now, it has reached 1 million weekly users, which is fantastic. We want to integrate Answers with Reddit Search and have a unified search box. This means when you type your query in there, you'll get either your Answers results or more conventional Reddit responses depending on what you're searching for. Integrating this deeper into Reddit means we'll create several entry points for search. One would be for new users opening Reddit for the first time. We want to use Answers to help them see what's available. The other will be for users coming from external searches, providing them with a summarized or easier-to-digest version of answers on Reddit. I believe there are a lot of opportunities here. The evolution of questions being asked is interesting, too; it's unlocking new types of queries for subjective answers. Recently, I asked for a reading guide for an author I liked, and the results were practical and led me to related subreddits. Everything it provides cites comments from Reddit, so you can directly engage with those conversations. We're actively working on integrating this into the app this year, with many iterations to come.

Operator, Operator

Your next question comes from the line of Benjamin Black, Deutsche Bank. Please go ahead.

Benjamin Black, Analyst

Great. Thanks for taking my questions. Steve, you spoke about making Reddit easier to use and touched on making it sort of easier to contribute. I'd be curious to hear how contribution rates have actually trended as you’ve grown your user base. And in the past, how have improving contribution rates impacted the business? Does it have an impact on time spent, DAUs, or improvement? Any color there would be helpful. And then one on the data licensing side of the business: you're now entering your second year of your larger LLM deals, and investors are starting to think about the renewal process. Can you talk about your and also your partners' appetite to renew? How should we be generally thinking about the sustainability of the current data licensing revenue? Thank you.

Steve Huffman, CEO

Okay. Question one, contribution rates. It's a bit complex, but we've been focused on what we call contribution success. This measures whether the posts submitted by users, whether they are new or core users, survive the moderation process. This is especially critical for new users—they might post something that unwittingly violates subreddit rules, leading to a poor user experience. We catch those posts after they are submitted and inform the user of the rule violation, allowing them to revise their post. This turns a negative experience into an educational moment. This work has proven to be meaningful, and while I don't have specific numbers now, improving post success rates has been critical for a healthy ecosystem. We will continue focusing on this aspect, as it also alleviates the burden on moderators. Regarding data licensing, it's too early to discuss renewals, but feedback has been positive. We see our data being leveraged widely, and our initial premise holds: any search or AI company needs ongoing access to new and relevant information. Our strategy remains the same: to be open and accessible while building our own products on top of our data, ensuring that Reddit continues to be valuable.

Operator, Operator

Your next question comes from the line of Tom Champion of Piper Sandler. Please go ahead.

Tom Champion, Analyst

Hi, good afternoon. Steve, I'm wondering if you could share some thoughts about how Google and the index treats machine-translated content. Is this highly ranked in the index as unique user-generated content, or is it perceived to be AI-generated, which could be ranked lower? Any comments would be helpful. And then, Drew, a question for you on cost growth. Obviously, really strong results since the IPO, and the 19% cost growth is impressive in light of 60% top-line growth. My question is: why not invest more? Is there anything you could invest in or be doing on the hiring side or performance side in light of that extremely strong top-line growth? Why are we targeting that 70% incremental EBITDA margin? Thank you.

Steve Huffman, CEO

What great questions. Let's start with Google and machine translation. We had the same question when we began, so we asked Google directly. They confirmed that they are onboard with it because we're essentially the first to do this at scale. We've partnered with Gemini for this translation effort. It’s a viable route to bring more user-generated content into the index across multiple languages, which can attract new users. This collaboration has been working great. And then Drew, could you address cost growth?

Andrew Vollero, CFO

Well, we can't say. We certainly have the money to invest. The key here is that our North Star is to ensure our revenue growth is at least double the growth of costs. You're correct that we have been exceeding that. We didn’t set the 70% target on a whim; it reflects our current position. We're having success with the investments, which I think contributes to your question. Our investments focus on hiring and technology. We’re concentrating on the sales and engineering side, particularly increasing our ad tech and machine learning capabilities. The successes of these investments have been strong, leading to accelerated revenue growth while maintaining high incremental margins above our targeted 50%. In Q1, our adjusted cost growth was 1% sequentially and 19% year-over-year, significantly lower than revenue growth. Cost of revenue stayed efficient with gross margins exceeding 90% for Q1, benefiting from both incremental revenue growth and lower hosting contract pricing based on new contracts we executed late last year. We're reinvesting that savings across many important initiatives like user and ad revenue growth. Operating expenses have been consistent with just 17% growth, while our headcount grew 13% year-over-year. We’re focused on profitability and cash flow amidst strong revenue growth. We have more cash than we need, and we want to ensure we’re disciplined in our investments.

Steve Huffman, CEO

I'll just add, the emphasis on disciplined cost growth has been a crucial management strategy over the past few years, one we take pride in.

Operator, Operator

Your next question comes from the line of Ken Gawrelski of Wells Fargo. Please go ahead.

Ken Gawrelski, Analyst

Hi, thank you very much for the question. I appreciate it. I want to go back to the DAU point you made about being up in the high teens in April and the volatility. Could you just provide bit more color on both U.S. versus international and kind of logged-out versus logged-in? Any insights on the trends in April? Did you see any disruptions around March that may have impacted the Q1 reported DAU number? Thank you.

Steve Huffman, CEO

So, look, we're focused on the product and building for the long term. Search traffic is mostly logged-out, but there is a portion that is logged-in. It's primarily U.S.-based as we have a larger content base there where we've had it for a longer time. We'll see where it goes. As I said, we anticipate some bumps. Some bumps are normal, but it could be bumpier than usual due to ongoing evolution in the space. We'll provide more insights in the next quarter.

Operator, Operator

Your next question comes from the line of John Colantuoni of Jefferies. Please go ahead.

John Colantuoni, Analyst

Great. Thanks for the questions. When thinking about the various drivers of your advertising revenue over the medium term, can you give us your perspective on how you're thinking about the relative contributions from all those initiatives in the next 12 to 24 months? You've obviously got a lot going on, so I think that perspective would be helpful. And second, on dynamic product ads specifically, could you discuss your progress in marrying predictive analytics and conversion insights with the necessary capabilities to meaningfully scale that product this year? Thanks.

Jennifer Wong, COO

I can take that. It's challenging to break down each piece, as we’re investing across many areas. I believe the growth drivers observed now have significant room for opportunity within our roadmap. In terms of go-to-market, our scale channel for mid-market and SMB has extensive potential. There are thousands of advertisers across every vertical that can use Reddit, allowing us to tap into newly available segments. This area has been our highest growth channel with substantial potential. Secondly, performance objectives, particularly conversions and installs—with the addition of DPA or dynamic product ads—have shown high growth. That's something we've been developing for about 18 to 24 months, and I believe there's still much room for growth. Lastly, we are in the early stages of our international journey, as over half our audience is based outside the U.S., but only about 20% of our revenue comes from these areas. There’s substantial opportunity in this field. Regarding dynamic product ads, it's currently in beta. This end-to-end process requires integrating comprehensive ML models, and we do see progress. As mentioned, we have observed a 90% ROAS gain, which is encouraging, but we're still very early in that journey. We’re looking to enhance capabilities for ingesting larger catalogs of products and will continue refining our ML models with more data gathered from adopters of our conversion API, which bolsters our belief in the path forward.

Operator, Operator

Your next question comes from the line of Eric Sheridan of Goldman Sachs. Please go ahead.

Eric Sheridan, Analyst

Thanks so much for taking the questions. Maybe two, if I could. Steve, maybe a bigger picture question. A lot of what you've talked about today feeds into the roadmap for Reddit. Where do you see the biggest opportunities to put more structure on the activity levels and content being created on Reddit that could improve user conversion dynamics or the user funnel, as well as create monetization opportunities in the next couple of years? And Jen, can you provide any update on the evolution of marrying engagements with ads? Do you have any updates on richer media formats and how you continue to progress with video and other elements that could amplify engagement and monetization for the advertising community? Thank you.

Steve Huffman, CEO

Thanks Eric. Let me answer the first question. This points to what we have discussed in the past regarding scrollers and seekers. Scrollers are users who engage with the community and conversation—it's about topics they care for—versus seekers who come to Reddit looking for answers. We haven’t built a product specifically for seekers until now. If a user comes from Google to Reddit, they often land on a content page designed for scrollers, which isn't as effective for answering their questions. We can embrace the use case brought by users better, and I believe this will enhance user satisfaction further down the line. This should lead to improvements in engagement, retention, and broader metrics. It boils down to focusing on user needs. As for your second question, Jen can take that.

Jennifer Wong, COO

Yes, I'll address that. Reddit has some of the deepest engagement rates online, and this is aside from video because of how the platform is structured and the mindset users have when they visit. Our ad platform consistently generates strong resonance and outcome results, with about 40% of ads in video formats and the remainder being visual or text-driven. Reddit's ad outcomes are media-agnostic, both on the consumer and ad side. We are working diligently to simplify the process for importing existing video assets into the ad stack, where we might handle cropping automatically, and we're integrating with Memorable AI to help optimize creative variants. Even though video is successful on our platform, our aim isn't singularly focused on it. Multiple media formats succeed well on Reddit for ads.

Operator, Operator

Your next question comes from the line of Richard Greenfield of LightShed. Please go ahead.

Richard Greenfield, Analyst

Thanks for taking the question. Steve, I read your comments in the letter about making the best version of Reddit by being faster, easier, and better to use. I'd love to gauge how you would rate yourself on that journey today on a scale of 1 to 10, with 10 being the best. How should we think about the improvements coming over the years? And how does this tie into making Reddit the starting point for users online instead of a destination accessed via Google, OpenAI, etc.?

Steve Huffman, CEO

It's challenging to quantify where we are on that scale. We are in the midst of our journey and have become better than we once were. However, I continue to see areas for improvement. As a part of my work, I enjoy the challenge of continually iterating on the product. I don’t see it as an either-or situation between us and other products; we fulfill different user needs. There will likely be overlaps, but we serve different experiences. I expect companies, including Google and others, to continue evolving alongside us, and I believe we will succeed in this dual label of fulfilling different needs.

Operator, Operator

Your next question comes from the line of Jason Helfstein of Oppenheimer. Please go ahead.

Unidentified Analyst, Analyst

Hi, this is Steve on for Jason. Just two questions from us. First, could you share any commentary on the continued strength within U.S. logged-in users? Are you seeing improved conversion or retention within the desktop or app? Second, any updates on the Meta campaign import tool that was announced and launched about a month ago? Is it helping to reduce advertisers' time to launch a campaign and/or driving solid ad performance? Thank you.

Steve Huffman, CEO

Yes. The success story behind logged-in user conversion and retention is solid over the past couple of years. We've implemented several enhancements to streamline account registration, onboarding, and community discovery. This has become our most critical measurement metric—new user retention. We’ll continue to progress. This work is fundamental, as retention is vital for future growth. It’s all about making people realize the value of Reddit and helping them discover it. Regarding the Meta tool?

Jennifer Wong, COO

Yes. That campaign import feature is part of a broader effort we have to make it easier for advertisers to get started on Reddit. We’re increasingly focused on reducing friction for onboarding, and this is one of those features that help with that goal. We have seen some initial adoption of this tool, and we're encouraged by the overall growth in our advertiser base.

Operator, Operator

Your next question comes from the line of Alan Gould of Loop Capital. Please go ahead.

Alan Gould, Analyst

Yes, thanks for taking the question. I've got two. First, can you comment on what’s happening with per-user engagement? Second, Steve, one of the things that makes Reddit special is the moderators. Given the significant growth in users you've experienced, assuming strong user engagement, I know you're utilizing technology, but how do you manage that growth for all the moderators? Are you adding more moderators, and what’s your strategy to ensure moderation remains effective? Thank you.

Steve Huffman, CEO

Great questions. Regarding per-user engagement, this varies depending on the channel. I’ll reference the answers I provided earlier today. Improving our home feeds has been a significant contributor to retention in the past couple of years. Serving the right subreddit content at the right time of day is crucial, and we plan to continue iterating on this. Now, regarding moderator capacity, we are focused on reducing moderator burden while also increasing the number of moderators. AI tools assist in alleviating some of this burden. We're also actively recruiting and training new moderators to increase community diversity, which is an essential aspect of our international expansion. Our strategy is fundamentally about providing support for moderators while expanding our moderation infrastructure to serve our growing user base.

Operator, Operator

Your next question comes from the line of Dan Salmon of New Street Research. Please go ahead.

Dan Salmon, Analyst

Great afternoon everyone. Thanks for taking the question. Jen, I believe you mentioned during your prepared remarks that the conversation ad placements now account for 6% of impressions. Could you provide more insights into the performance of this format and how it plays into informing your search strategy and broader monetization strategies moving forward?

Jennifer Wong, COO

Certainly. The ad placements in conversations—ads below the posts and above the comments—combined with a new ad inside the comments, which has proven to be a highly engaged space, as users often read comments for answers to their questions. This is significant because 40% of conversations on Reddit relate to commercial products and services. We're pleased with the performance of this in-context advertising. Few platforms implement ads in their comments, but it's highly contextual and generates high engagement here on Reddit. Users come in two ways: either clicking through search when looking for specific answers or navigating from posts of interest. Therefore, intent in that space is extremely high, leading to positive outcomes and performance for advertisers.

Steve Huffman, CEO

Thanks, Jen. Kelvin, I think we're out of time here, so we'll wrap-up. Thanks everyone for joining. We appreciate your time and look forward to speaking with you again soon.

Operator, Operator

This concludes Reddit's Q1 2025 earnings call. You may now disconnect.