Q1 2024 Reddit Inc Earnings Call
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Julianne: 4, 3, 2, 1. Good afternoon. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to Reddit's Q1 2024 earnings call. All lines have been placed on mute to prevent any background noise.
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Julianne: Good afternoon, My name is Juliann and I'll be your conference operator today.
Julianne: At this time I would like to welcome everyone to read it in Q1, 'twenty 'twenty four earnings call.
Julianne: All lines have been placed on mute to prevent any background noise.
Julianne: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Jesse Rose, Head of Investor Relations. You may now begin.
Julianne: After the Speakers' remarks, there'll be a question and answer session.
Jesse Rose: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Jesse Rose: If you would like to withdraw your question Press Star one again, thank you.
Jesse Rose: I would now like to turn the call over to Jessie Rose head of Investor Relations you May now begin.
Jesse Rose: Great. Thanks Julien.
Jesse Rose: Good afternoon, everyone. Welcome to Reddit's first quarter 2024 earnings conference call. Joining me today to share our results are Steve Huffman, Reddit's co-founder and CEO, Jen Wong, Reddit COO, and Drew Valero, Reddit CFO. The remarks will be followed by a Q&A session. We issued our first quarterly letter to shareholders earlier today and have made it available on our investor relations website and our investor relations subreddit, RDDT. Before we get started, I'd like to remind you that our remarks today will include forward-looking statements, including those regarding our future plans, objectives, expected performance, and, in particular, our guidance for the next quarter.
Jesse Rose: Good afternoon, everyone. Welcome to run its first quarter 2024 earnings conference call. Joining me today to share our results are Steve Hoffman rates cofounder and CEO Jen Wong Red C O L. Andrew Bolero Reddit CFO there.
Jesse Rose: Our remarks will be followed by a Q&A session.
Jesse Rose: We issued our first quarter letter to shareholders earlier today, an immediate available on our Investor Relations website, and our Investor Relations Subreddit argue D G.
Jesse Rose: Before we get started I'd like to remind you that our remarks today will include forward looking statements, including those regarding our future plans objectives expected performance and in particular, our guidance for the next quarter.
Jesse Rose: Actual results may vary materially from today's statement. Information concerning risks, uncertainties, and other factors that could cause these results to differ is included in our SEC filings, including those stated in the risk factor section of our filings with the SEC. These forward-looking statements represent our outlook only as of the date of this call. We undertake no obligation to revise or update any forward-looking statement.
Jesse Rose: Actual results may vary materially from today's statements information.
Jesse Rose: Concerning risks uncertainties and other factors that could cause these results to differ is included in our SEC filings, including those stated it in the risk factors section of our filings with the SEC.
Jesse Rose: These forward looking statements represent our outlook only as of the date of this call.
Jesse Rose: Undertake no obligation to revise or update any forward looking statements.
Jesse Rose: Additionally, the matters we will discuss today will include both GAAP and non-GAAP financial measures. Reconciliation of any non-GAAP financial measures to the most directly comparable GAAP measures is set forth in our letter to shareholders. Non-GAAP financial measures should be considered in addition to, not as a substitute for, GAAP measures. Now, I'll turn the call over to you.
Jesse Rose: Additionally, the matters, we will discuss today will include both GAAP and non-GAAP financial measures.
Jesse Rose: Conciliation of any non-GAAP financial measures to the most directly comparable GAAP measures is set forth in our letter to shareholders.
Jesse Rose: non-GAAP financial measures should be considered in addition to not as a substitute for GAAP measures. Finally, today's conference call is being recorded and webcast. It now I'll turn the call over to Steve.
Jesse Rose: Thanks Jesse.
Steve Huffman: Hi everyone, I'm Steve, Reddit's co-founder and CEO, and I'll be kicking things off for us today. Welcome to our first earnings call as a public company. I'd like to start off by saying thank you for spending a bit of your time with us today.
Jesse Rose: Everyone I'm, Steve <unk>, co founder and CEO and I'll be kicking things off for us today.
Steve Huffman: So our first earnings call as a public company I'd like to start off by saying. Thank you for spending a bit of your time with us today.
Steve Huffman: We believe that great companies are built in the public markets, and we're proud to have made the transition this quarter. Our IPO is an important moment for the company, and I want to say thank you to our employees, our users, and investors who all made it possible. And I also want to say welcome to our new investors, particularly to our new user investors. For users to be able to own some of Reddit has long been a dream of theirs. Starting today and going forward, we want to include the community in this process. Our current plan will be to answer a few of their questions on this call, and then we'll do a few more on our DDT subreddit after this call.
Steve Huffman: We believe that great companies are built in the public markets and we're proud to have made the transition this quarter. Our IPO was an important moment for the company and I want to say, thank you to our employees are users and investors, who all made it possible and I also want to say welcome to our new investors.
Steve Huffman: Particularly to our new user investors for users to be able to own some of Radnet has long been a dream of mine.
Steve Huffman: Starting today and going forward, we want to include the community in this process.
Steve Huffman: Our current plan will be to answer a few of the questions on this call and then we'll do a few more.
Steve Huffman: Our DDT sub right. After this call this process will likely evolve as we go forward.
Steve Huffman: This process will likely evolve as we go forward. I also want to acknowledge the research analysts who have been with us on this journey, helping us to prepare by not doing just the 1, but 8 practice earnings calls over the last 2 years. Very much appreciated. Thank you.
Steve Huffman: I also want to acknowledge the research analysts who have been with US on this journey, helping us to prepare by not doing just one but eight practice earnings calls over the last two years, it's very much appreciate it. Thank you.
Steve Huffman: We're happy with our progress this quarter. More people are visiting Reddit than ever before. Users grew 37% year-over-year in the first quarter. We averaged over 80 million users daily and 300 million users weekly. And we grew across logged in, logged out, and within the U.S. and abroad. The most reliable way for us to grow Reddit is to make it better.
Steve Huffman: We're happy with our progress this quarter more people are visiting rather than ever before users grew 37% year over year in the first quarter, we averaged over 80 million users daily and 300 million users weekly and we grew across logged in logged out and within the U S and abroad.
Steve Huffman: The most reliable way for us to grow rather than make credit better.
Steve Huffman: As such, our primary focus this year is to continue to make Reddit faster, easier to use, and safer. A new web platform, Shred It, is up to 100% of users, and it's more than twice as fast as the platform that it replaces. Speed equals retention.
Steve Huffman: As such our primary focus this year is to continue to make it faster easier to use and safer.
Steve Huffman: Our new web platform shred it is up to a 100% of users and it's more than twice as fast as the platform that replaces.
Steve Huffman: E equals retention retention equals growth.
Steve Huffman: Retention equals growth. We have also recently updated our native apps with instant comment loading. Comments and conversation are the heart of Reddit, and we've made it faster and easier for users to join in. Our investments in machine learning and AI will continue to improve relevance, engagement, and moderation. We have and will continue to use machine learning to improve our ability to help users find communities they'll love, which in turn increases engagement across the platform.
Steve Huffman: We also recently updated our native apps with instant comment loading comments in conversation at the heart of Red hat, and we made it faster and easier for users to join an.
Steve Huffman: Our investments in machine learning and AI will continue to improve relevance engagement and moderation.
Steve Huffman: We have and will continue to use machine learning to improve our ability to help users find communities they'll love, which in turn increases engagement across the platform.
Steve Huffman: And for moderation, we've trained our own large language models that have dramatically reduced the time required for communities to enforce their own rules. We're in testing with this in a couple of communities right now, and we'll be rolling it out more broadly.
Steve Huffman: And for moderation, we've trained our own large language models that have dramatically reduced the time required for communities to enforce their own rules we're in testing.
Steve Huffman: With this in a couple of communities right now and we'll be rolling out more broadly see.
Steve Huffman: And to grow outside the US, we're using machine translation to unlock our mostly English core. We believe this will not only drive growth in the near term but also, over time, allow users from all over the world to connect regardless of the languages they speak. Now turning to some of our emerging areas as we think about the next generation of Reddit, a few of the initiatives we have here are the user economy, developer platform, and search.
Steve Huffman: And to grow outside the U S. We're using machine translation to unlock our mostly English corpus.
Steve Huffman: We believe this will not only drive growth in the near term, but also over time will allow users from all over the world to connect regardless of the languages they speak.
Steve Huffman: The user economy refers to a family of features that will allow users to spend and earn money on Reddit. Launching soon is a revamped version of User Awards and Reddit Gold, which is our virtual currency that enables both. And our developer platform, third-party third-party developers will be able to push the boundaries of what a subreddit can be, and we're excited with the early progress here. For example, WallStreetBets has live stock tickers for trending stocks, and a number of sports subreddits have built live scoreboards to track progress.
Steve Huffman: Now turning to some of our emerging areas as we think about the next generation of <unk>.
Steve Huffman: A few of the initiatives. We have here are the user economy developer platform and search.
Steve Huffman: Our economy refers to a family of features that will allow users to spend and earn money on right at.
Steve Huffman: Launching soon is a revamped version of user awards and reticle old which is a virtual currency that enables both of these things.
Steve Huffman: And our developer platform.
Steve Huffman: Party third party developers will be able to push the boundaries of what a separate it can be and we're excited with the early progress here for example wall Street has livestock tickers for Chinese stocks in a number of sports subreddits adult lives Scoreboards the truck gain.
Steve Huffman: Historically, the value of Reddit to our users has been in conversation about recent... But with improvements to on-platform search, we can unlock the huge amount of latent value in all of our past content, including all the answers, reviews, and advice that we have, and we're going to continue to invest here. It's an exciting time.
Steve Huffman: Historically the value of Red Hat's, why users has been in conversation about recent topics, but with improvements to on platform search we can unlock the huge amount of latent value in all of our past content, including all of the answers reviews and advice that we have and we're going to continue to invest here.
Steve Huffman: The technology landscape is evolving, and Reddit is becoming more important and valuable. Reddit is one of the largest places for authentic connection and conversation online, and more and more people are discovering and appreciating it. We believe Reddit is more important now than ever before, not only as an alternative to traditional social media, but as we enter the AI era where the value of our corpus continues to grow. The paradox I see is that as more content on the internet is written by machines, there's an increasing premium on content that comes from real people.
Steve Huffman: It's an exciting time the technology landscape is evolving and read it is becoming more important and valuable.
Steve Huffman: Read it as one of the largest places for authentic.
Steve Huffman: Nextgen in conversations online and more and more people are discovering and appreciating. This we believe is more important now than ever before not only as an alternative to traditional social media, but as we enter the AI era with a value of our corpus continues to grow.
Steve Huffman: Paradox I see.
Steve Huffman: Instead as more content on the Internet is written by machines. There is an increasing premium on content that comes from real people and we have nearly two decades of authentic conversation unique perspectives earnest advice honest reviews and answers to questions about every topic imaginable.
Steve Huffman: And we have nearly two decades of authentic conversation, unique perspectives, earnest advice, honest reviews, and answers to questions about every topic imaginable. There are multiple ways Reddit benefits from the evolving ecosystem, and we're still in the early stages of exploring use cases for its data. This includes both internally to improve the platform and experience for users and externally through partnerships. We remain committed to the open Internet, but we need to be aware of where Reddit's data ends up and what it's used for.
Steve Huffman: There are multiple ways read it benefits from the evolving ecosystem and we're still in the early stages of exploring use cases for <unk>.
Steve Huffman: This includes both internally to improve our platform and experience for users and externally through partnerships. We remain committed to the open internet, but we need to be considered of where we're at it's data ends up and what it's used for and we need to find the right balance between open and fair and respectful of our users.
Steve Huffman: And we need to find the right balance between open and fair and respectful of our users. To wrap up, this was a strong start of the year for Reddit, and we're executing better than ever. We see so much opportunity and could not be more excited about our future. Thanks again for taking the time with us today, and now I'll hand it over to Jay.
Jay: To wrap up this was a strong start of the year for red It and we're executing better than ever we see so much opportunity and could not be more excited about our future. Thanks again for taking time with us today and now I'll hand, it over to Jack.
Jen Wong: Thanks, Steve. Hello, everyone.
Jay: Thanks, Steve Hello, everyone. Our IPO was an important milestone for rent it in our communities and I'm thankful for everyone that help make it possible I couldnt be more excited about what its future as a public company.
Jen Wong: Our IPO was an important milestone for Reddit in our communities, and I'm thankful for everyone that helped make it possible. I couldn't be more excited about Reddit's future as a public company. Reddit is still early in its monetization journey, and proud of what we've achieved to date with our advertising business and our new and emerging businesses in data licensing and user. We aspire to be a leader in contextual and interest-based advertising, and every day, we are working to improve our advertiser solutions and bring new advertisers to the platform.
Jen Wong: But it is still early in its monetization journey I'm proud of what we've achieved to date, our advertising business on our new and emerging businesses and data licensing and the use of our economy.
Jen Wong: We aspire to be a leader in textual an interest based advertising and everyday we are working to improve our advertiser solution and bring new advertisers to the platform.
Jen Wong: In the first quarter, we successfully scaled and diversified our business, expanded partnerships, and executed it on our ads platform, Vogue. Total revenue growth accelerated in the first quarter and grew by 48% year-over-year to $243 million, the fastest year-over-year growth since Q1 2022. We continue to see traction with our strategies alongside a more favorable ad market versus last year and make progress in our emerging data licensing business. Total U.S. revenue grew 53%, and international revenue grew 30% year-over-year. International revenue represented 18% of total revenue in Q1.
Jen Wong: In the first quarter, we successfully scaled and diversified our business expanded partnerships and executing on our ads platform blurb that total revenue growth accelerated in the first quarter and grew by 48% year over year to $243 million the fastest year over year growth since Q1 2022.
Jen Wong: We continued to see traction with our strategies alongside a more favorable AD market versus last year and made progress in our emerging data licensing business total U S revenue grew 53% and international revenue grew 30% year over year International revenue represented 18% of total revenue in Q1.
Jen Wong: Advertising revenue grew 39% year-over-year to $223 million, the third consecutive quarter of accelerating growth year-over-year. Other revenue grew over 450% year-over-year to $20 million, primarily driven by new data licensing agreements we signed in the first quarter. I'll first discuss our ad revenue drivers. Our investments have enabled us to drive performance for advertisers. Click volume doubled, and we improved click-through rates by over 40% year-over-year in the quarter.
Jen Wong: Advertising revenue grew 39% year over year to $223 million, the third consecutive quarter of accelerating growth year over year.
Jen Wong: Other revenue grew over 450% year over year to $20 million, primarily driven by new data licensing agreements, we signed in the first quarter.
Jen Wong: I'll first discuss our App revenue drivers our investments enabled us to drive performance for advertisers.
Jen Wong: Volume doubled and the improved click through rates by over 40% year over year in the quarter.
Jen Wong: Our full suite of solutions across the marketing funnel continues to position us well for a broad set of advertisers; our performance advertising business drives traffic and conversions through more than half of our growth in the quarter. Ad revenue growth was primarily driven by increases in impressions delivered against a year-over-year decline in prices. We saw revenue growth across all of our managed channels. Our scaled business, mid-market, and S&B, grew at a faster pace than total revenue.
Jen Wong: Our full suite of solutions across the marketing funnel continue to position us well for a broad set of advertisers our performance advertising business, which drives traffic and conversions drove more than half of our growth in the quarter.
Jen Wong: AD revenue growth was primarily driven by increases in impressions delivered again see year over year decline in pricing.
Jen Wong: We saw revenue growth across all of our managed channels, our scaled business Midmarket and SMB grew at a faster pace than total revenue. It is an investment area for us and was in line with our expectation.
Jen Wong: This is an investment area for us and was in line with our expectations. Our large customer service channel, which accounted for slightly over 60% of total revenue, saw broad-based growth. Looking at verticals, the tech vertical returned to growth, and we experienced particular strength in the finance, pharma, and CPG categories, each growing over 50% year-over-year. We are pleased with our progress to diversify our revenue. And in Q1, there's no vertical that exceeds 20% of our ads revenue today. In terms of geography, international revenue increased 30% year-over-year to $43 billion in the first quarter, an acceleration from 21% year-over-year growth in Q4 last year.
Jen Wong: Our large customer service channel, which accounted for slightly over 60% of total revenue saw broad based growth.
Jen Wong: Looking at verticals.
Jen Wong: Tech vertical returned to growth and we experienced particular strength in the finance pharma and CPG categories, each growing over 50% year over year.
Jen Wong: I'm pleased with our progress to diversify our revenue and in Q1, there is no vertical that exceeds 20% of our ads revenue today.
Jen Wong: In terms of geography international revenue increased 30% year over year to $43 billion in the first quarter and acceleration from 21% year over year growth in Q4 last year. This was driven by strength across large and mid market customers in EMEA.
Jen Wong: This was driven by strength across large and mid-market customers in EMEA. We've also made meaningful progress against our ad tech roadmap. Here, we are focused on a few key pillars. Number one, improving usability for our advertisers and the productivity of our sales force. Number two, driving full funnel performance of our ad solution. And number three, offering our advertisers Reddit unique solutions and creatives that they can't find anywhere else. But first, to improve usability for advertisers, we focus on cutting down the campaign setup time for self-serving small businesses. We're using advancements in AI to remove friction and reduce setup time.
Jen Wong: We've also made meaningful progress against our AD Tech roadmap here, we are focused on a few key pillars number one improving usability for our advertisers and productivity of our sales force number two driving full funnel performance of our AD solution and number three offering our advertisers rather unique.
Jen Wong: Solutions and creative that they can't find anywhere else.
Jen Wong: First to improve usability for advertisers, we focus on cutting down the campaign setup time for self serving small businesses were using advancements in AI to remove friction and reduce setup time, we lost an AI driven headline generator for simple create which is nameless self serve creation flow for small businesses and we're seeing promising early activation with <unk>.
Jen Wong: We launched an AI-driven headline generator for Simple Create, which is mainly a self-serve creation flow for small businesses, and we're seeing promising early activation and adoption rates. Next, to improve the performance and measurability of our ad solutions, we made progress building out our conversion API ecosystem to capture more signals and improve our models that drive performance. We launched our CAPI late last year, and this quarter, we announced integrations with TLM, a leading customer data platform, and Google Tag Manager.
Jen Wong: Adoption rates.
Jen Wong: Next to improve performance and measure ability of our AD solution. We made progress building out our conversion API ecosystem to capture more signals and improve our models that drive performance. We launched our copy late last year and this quarter, we announced integrations with <unk>, a leading customer data platform and Google tagging.
Jen Wong: Manager.
Jen Wong: We continue to innovate with our ads products to bring our advertisers closer to our communities. We launched Free Form Ads, which provides advertisers with a versatile and creative format to drive deeper engagement with users. Testing has shown that pre-form ads have a meaningfully higher click-through rate than other ad types, and we've seen double the number of campaigns per day since it launched.
Jen Wong: We continue to innovate with our ads products to bring our advertisers closer to our communities. We launched free format, which provides advertisers with a versatile and creative formats to drive deeper engagement with user testing.
Jen Wong: Testing has shown that free form as have a meaningfully higher click through rate than other AD types and we've seen double the number of campaigns per day since its launch.
Jen Wong: We've also launched Reddit Pro, a free suite of AI-powered insights and tools to provide businesses an opportunity to establish and grow a meaningful, organic presence on Reddit. We're currently in beta with over a thousand businesses, including Taco Bell, Wendy's, NFL, The Wall Street Journal, as well as several S&Bs. We're also continuing to lay the foundation for the future of shopping on Reddit. Users come to Reddit during their purchasing journey and value the rich, human-powered product and review discussions on our platform. We launched our first shopping ads and catalog ingest capabilities last year and are now testing dynamic product ads.
Jen Wong: We also launched <unk> pro our free suite of AI powered insights and tools to provide businesses an opportunity to establish and grow a meaningful organic presence on reddit.
Jen Wong: Currently in beta with over a thousand businesses, including Taco Bell Wendy NFL, The Wall Street Journal as well as several F&B.
Jen Wong: We're also continuing to lay the foundation for the future of shopping on Reddit.
Jen Wong: Users come to read it during their purchasing journey and valued the rich human powered product and review discussions on our platform.
Jen Wong: We launched our first shopping ads and catalog ingest capabilities last year and are now testing dynamic product ads.
Jen Wong: We're pleased with the early results. Next, I'll share an update on our data licensing. Our data licensing business continues to grow and evolve as the market is still nascent. In the first quarter, we signed licensing agreements with various companies in the social listening space and with Google, as we previously announced. The financial impact of the signed partnerships is reflected in our Q1 financials as other revenue and in our revenue guide for Q2, which you'll hear from Drew shortly.
Jen Wong: We're pleased with the early results.
Jen Wong: Next I'll share an update on our data licensing business.
Jen Wong: Data licensing business continues to grow and evolve as the market is still nascent.
Jen Wong: In the first quarter, we signed licensing agreements with various companies in the social listening space and with Google as we previously announced the financial impact of the signed partnerships are reflected in our Q1 financials as other revenue and in our revenue guide for Q2, which Youll hear from June shortly.
Jen Wong: Over time, we will strategically explore data licensing partnerships, as well as other uses for Reddit data internally, which we believe is also valuable in improving the platform and experience for our users and customers. Overall, we delivered solid results in our first quarter as a public company and remain focused on executing and fulfilling our mission. I hope you share the same excitement that we have for Reddit's future and look forward to the journey ahead. Now, I'll turn the call over to Drew.
Jen Wong: Over time, we will strategically explore data licensing partnerships as well as other uses for ret at data internally, which we believe is also valuable in improving the platform and experience for our users and customers.
Drew: Overall, we delivered solid results in our first quarter as a public company and remain focused on executing and fulfilling our mission.
Drew: I hope you share the same excitement that we have embedded future and look forward to the journey ahead.
Jen Wong: Now I'll turn the call over to drew.
Drew Valero: Thank you, Jen, and good afternoon, everyone. As we often say, Reddit has a powerful financial model that's straightforward, advantageous, and scalable. The power of the financial model was evident in the first quarter, and we reached an important inflection point. In the first quarter, we achieved adjusted EBITDA profit, which is both a marked difference from a year ago and a positive start to 2024. The key to that success was that revenue grew over five times as fast as total adjusted costs. In the quarter, revenues grew 48% year over year, and total adjusted costs grew 9%. Let's summarize the highlights.
Drew: Thank you Jen and good afternoon, everyone. As we often say read it has a powerful financial model that straightforward advantage the scale.
Drew Valero: The power of the financial model is evident in the first quarter, we reached an important inflection point.
Drew Valero: In the first quarter, we were adjusted EBITDA profitable.
Drew Valero: Which is both a market difference from a year ago and a positive start to 2024.
Drew Valero: The key to that success was that revenue grew over five times as fast as total adjusted costs.
Drew Valero: The quarter revenues grew 48% year over year and total adjusted costs grew 9% year over year.
Drew Valero: Let's summarize the highlights.
Drew Valero: DAUQ averaged $82.7 million, up 37% year-over-year, driven by structural product changes that increased speed, onboarding simplicity, and consumer connection to more relevant content. Domestic users were 50% of total users in the quarter, while logged-in users were about 48% of the user base.
Drew Valero: <unk> averaged $82 7 million up 37% year over year, driven by structural product changes that have increased speed on 40 simplicity and consumer connection to more relevant content.
Drew Valero: Stick users, where 50% of total orders in the quarter logged in users were about 48% of the user base.
Drew Valero: sequentially, we added 9.6 million users in the quarter, our largest increase in three years, with 60%, with over 60% of those users being logged out. Revenues were $243 million, up 48% year over year, driven by both a strong acceleration in the ad business and the incremental data licensing revenue from new large and small deals. Other revenue was $20 million in the quarter, up 454% from last year. International revenues were $43 million, up 30% year-over-year, and 18% of total revenue.
Drew Valero: Sequentially, we added $9 6 million users in the quarter, our largest increase in three years with 60% with over 60% of those users being locked out.
Drew Valero: Revenues were $243 million up 48% year over year, driven by both a strong acceleration in the AD business and the incremental data licensing revenue from new large and small deals.
Drew Valero: Other revenue was $20 million in the quarter up 454% from last year.
Drew Valero: International revenues were $43 million up 30% year over year and 18% of total revenue.
Drew Valero: Reddit's business model has a couple of distinct advantages, which really shone in the quarter in two areas. First, our gross margins remain best-in-class. Gross margins were 88.6% in the first quarter, up 500 basis points versus last year, driven by high-margin revenue gains, lower hosting contract prices, tech stack efficiencies, and the creative margin tailwind for the new data licensing deal. Second, our CapEx remains very light.
Drew Valero: <unk> business model is a couple of distinct advantages, which really shined in the quarter in two areas first our gross margins remained best in class.
Drew Valero: Gross margins were 88, 6% in the first quarter up 500 basis points versus last year, driven by high margin revenue gains lower hosting contract prices.
Drew Valero: X DAC efficiencies and the accretive margin tailwind for the new like data licensing deals.
Drew Valero: Second our Capex remains very light Capex was about $3 million in the first quarter and just over 1% of revenue.
Drew Valero: CapEx was about $3 million in the first quarter and just over 1% of revenue. Low CapEx was a contributing factor to our positive cash flow that was $29 million in the quarter. As we scaled our business, we saw great operating leverage in two areas. First, leverage and operating expenses and head. Non-GAAP operating expenses were up 10% year-over-year as we continued to hire selectively in strategic areas such as sales, ad tech, and machine learning. Total Q1 ending headcount increased 2% sequentially and 4% year over year.
Drew Valero: Low capex was a contributing factor to our positive free cash flow that was $29 million in the quarter.
Drew Valero: As we scaled our business, we saw great operating leverage in two areas.
Drew Valero: First was leverage in operating expenses and head count.
Drew Valero: non-GAAP operating expenses were up 10% year over year as we continued to hire selectively in strategic areas, such as sales AD Tech and machine learning.
Drew Valero: Total Q1, ending head count increased 2% sequentially.
Drew Valero: 4% year over year.
Drew Valero: Second, operating leverage on incremental sales. In Q1, revenue increased approximately 79 million year over year, and adjusted EBITDA increased about 60 million year over year, implying that over 75 cents of the incremental sales dollar reached the bottom line in the first quarter. These highly profitable incremental revenue dollars really help drive positive free cash flow and swing our business into profitability on an adjusted EBITDA basis. That said, we did have a gap net loss of $575 million in Q1 driven by stock-based compensation related taxes from the IPO.
Drew Valero: Second was operating leverage on incremental sales in Q1 revenue increased approximately $79 million year over year, and adjusted EBITDA increased about $60 million year over year, implying that over 75 on the incremental sales dollar reached the bottom line in the first quarter.
Drew Valero: These highly profitable incremental revenue dollars really helped drive positive free cash flow and screen business into profitability on an adjusted EBITDA basis.
Drew Valero: That said, we did have a GAAP net loss of $575 million in Q1, driven by stock based compensation and related taxes from the IPO.
Drew Valero: Stock-based compensation, including related taxes for the quarter, was $595 million, up from $13 million a year ago, driven primarily by one-time expenses related to the vesting of restricted stock units in connection with our initial public offer. On a non-GAAP basis, adjusted EBITDA was approximately $10 million in the first quarter, nearly a $60 million improvement from the first quarter of the prior year. This marks our first profitable Q1 on the Justity. Bidot basis, which in digital advertising is traditionally the slowest quarter of the year. However, positive adjusted EBITDA was a strong driver of cash flow.
Drew Valero: Stock based compensation, including related taxes for the quarter was $595 million up from $13 million a year ago, driven primarily by onetime expenses related to the vesting of restricted stock units in connection with our initial public offering.
Drew Valero: On a non-GAAP basis, adjusted EBITDA was approximately 10 million in the first quarter nearly a $60 million improvement from the first quarter over prior year.
Drew Valero: This marks our first profitable Q1 on an adjusted EBITDA basis, which in digital advertising is traditionally the slowest quarter of the year.
Drew Valero: Positive adjusted EBITDA was a strong driver of cash flow for the quarter.
Drew Valero: Cash from operating activities was $32 million in the first quarter, driven by improved performance and working capital improvements in DSO and DPO. A couple of other quick financial notes of interest on cash and shares. At the end of the first quarter, cash and marketable securities ended at $1.67 billion, and this included all IPO proceeds at this point. The dilution from employee grants was about 0.6% of our fully diluted shares outstanding as we issued about 1.2 million shares to employees in Q3.
Drew Valero: Cash from operating activities was 32 million in the first quarter, driven by improved performance and working capital improvements in DSO and CTO.
Drew Valero: A couple of other fixed financial notes of interest on cash and shares at the end of the first quarter cash and marketable securities ended at $1 67 billion and includes all IPO proceeds at this point.
Drew Valero: Dilution from employee grants was about 6% of our fully diluted shares outstanding as we issued about $1 2 million shares to employees in Q1, we.
Drew Valero: We view stock as a cost of our business and plan to manage dilution to be in line with peers in a low single-digit percentage range over time. As we look ahead, we'll share our internal thoughts on revenue and adjusted EBITDA in the second quarter, which is where we have the greatest visibility. In the second quarter of 2024, we estimate revenue to be in the range of $240 to $255 million and adjusted EBITDA to be in the range of $0 to $15 million.
Drew Valero: We view stock as a cost of our business and plan to manage dilution to be in line with peers in the low single digit percentage range over time.
Drew Valero: As we look ahead, we will share our internal thoughts on revenue and adjusted EBITDA for the second quarter, which is where we have the greatest visibility.
Drew Valero: In the second quarter of 2024, we estimate revenue to be in the range of $240 million to $255 million and.
Drew Valero: And adjusted EBITDA to be in the range of zero to $15 million.
Drew Valero: So in summary, Q1 was a strong start to the year, with accelerated user revenue growth and modest cost, which fueled solid margin expansion, adjusted even to our profitability, and positive free cash. Now, let me turn the call back over to you.
Drew Valero: So in summary, Q1 was a strong start to the year.
Drew Valero: With accelerated user and revenue growth and modest cost growth, which fueled solid margin expansion.
Drew Valero: Adjusted EBITDA profitability and positive free cash flow.
Drew Valero: Now, let me turn the call back over to Steve.
Steve Huffman: Thanks, Drew. Thanks, Jen.
Speaker Change: Thanks drew thanks Jan.
Speaker Change: We're going to take.
Steve Huffman: Okay, we're going to take a couple of questions from the community quickly and then we'll turn it over to the call here. So, first question from the community: how are your initiatives going in terms of licensing data for AI data models plans to expand beyond Google? The short answer is:
Speaker Change: A couple of questions from the community quickly and then we'll turn it over to the call here.
Steve Huffman: The first question.
Steve Huffman: From the community how are your initiatives going in terms of licensing data for AI.
Steve Huffman: Data models plans to expand beyond Google the short answer is.
Steve Huffman: Yes, but we're being cautious and selective with our partners, especially for the larger-scale search and training deals. We need to be very considerate of where our data goes and what it's being used for. I can't comment on deals that are under negotiation, but the landscape is bifurcated. There are a handful of large players, and then there are many more smaller opportunities, and we're looking into both. That said, not all players in the ecosystem are good fits for Reddit. We're in the early days here.
Steve Huffman: Yes, but we are being considered and selective.
Steve Huffman: With our partners, especially for the large the larger scale search and training deals.
Steve Huffman: Hmm.
Steve Huffman: And we need to be very considerate of where our data goes.
Steve Huffman: <unk> and what it's being used for.
Steve Huffman: I can't comment on deals that are under negotiation.
Steve Huffman: But the landscape is bifurcated there are a handful of large players and then there.
Steve Huffman: Many more smaller opportunities.
Steve Huffman: Looking into looking in the boat.
Steve Huffman: That said not all players in the ecosystem I think are good fits for rabbit.
Steve Huffman: We're in early days here I'd say big picture.
Steve Huffman: I'd say the big picture. We have seen an increase in interest in Reddit's data for various uses, and so we'll see. I look forward to how this grows.
Steve Huffman: We have seen an increase in interest in <unk>.
Steve Huffman: For various uses and so we'll see I look forward to how this grows.
Steve Huffman: Looking forward.
Steve Huffman: OK, second question, Jen. I think this one's for you. Can you go into specifics about what types of advertising are most responsible for the strong increase in earnings? Is it mostly increased sales on previously existing types of advertising or new types of advertising on the platform?
Speaker Change: Okay second question, Jon I think this one's for you.
Jen Wong: Can you go into specifics about what types of advertising are most responsible for the strong increase in earnings.
Jen Wong: Is it mostly increased sales on previously existing types of advertising or new types of advertising.
Jen Wong: On the platform.
Jen Wong: Sure, thanks for the question.
Jen Wong: Sure, thanks for the question. We actually saw growth in both supply and demand. Let me talk about the demand side. So across the funnel, we saw growth across the funnel, sort of the brand upper funnel, the mid funnel, which is driving traffic, as well as the bottom of the funnel, which is driving conversion. Brand in particular had a nice quarter and showed strength, certainly relative to, I think, Q1 2022 was the last really strong brand quarter. So it was really nice to see Brand come back.
Speaker Change: Alright, thanks for the question.
Speaker Change: We actually saw growth in both supply and demand a little soft.
Jen Wong: The demand side so.
Jen Wong: Across the funnel we.
Jen Wong: We saw we saw growth across the funnel sort of the brand upper funnel mid funnel, which is traffic driving as well as the bottom of the funnel, which is driving conversion.
Jen Wong: Brands in particular.
Jen Wong: And a nice quarter and showed strength certainly relative to you know.
Jen Wong: I think Q1 2022 was the last one really strong brand quarter. So it was really nice to see brand come Bakken mid I would say is doing really well because we have made those improving in CPR, 40% year over year double click volumes a lot of efficiency for advertisers.
Jen Wong: And mid-market, I'd say, is doing really well because we have made those improvements in CTR, 40% year-over-year, double in click volumes, and a lot of efficiency for advertisers. We also saw broad-based strength across the managed channels, particularly mid-market and our large customer channel in North America and in continental Europe. And then we have strength in verticals like finance, pharma, CPG, and tech return to growth. On the supply side, while designing new ad placements is an opportunity, our inventory today really consists of two core ad types.
Jen Wong: We also saw a broad base.
Jen Wong: Strength across our monarch channels, particularly in mid market and our large customer channel in North America and in Continental Europe.
Jen Wong: And then we have strength in verticals like finance pharma.
Jen Wong: And Pac returned to growth.
Jen Wong: Our side, while designing new AD placements as an opportunity.
Jen Wong: These are inventory today. It really consists of two core AD types, if the AD in the feed and the AD in the conversations or the comments page.
Jen Wong: It's the ad in the feed and the ad in the conversations or on the comments page. We did see strong growth in conversation placement inventory from users spending more time reading comments and diving deeper, as well as from some ad platform work. So, both supply and demand were helpful in driving the results.
Jen Wong: We did see strong growth in conversation placement inventory from users spending more time reading comments and diving deeper as well as from some AD platform work.
Jen Wong: Both supply and demand for warehouses and drivers in our business.
Julianne: Great. Thanks, Jen. Julianne, why don't we open up the line and take some questions from folks online? Sure. I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone. Our first question will come from Ron Josie from Citi. Please go ahead; your line is open. All right, thanks. Thanks for the questions, Steve, Jen, and Drew.
Great: Great. Thanks, Dan.
Speaker Change: Julien why don't we open up the line to take some questions from folks on the line.
Julianne: Certainly. I would like to remind everyone that in order to ask a question, please press star then the number one on your telephone key. Our first question will come from Ron Josie from Citi. Please go ahead. Your line is open.
Julianne: Certainly I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Steve Huffman: Sure, sure. Thanks.
Steve Huffman: Our first question will come from Ron Josey from Citi. Please go ahead. Your line is open.
Steve Huffman: Great. Thanks, Thanks for the question, Steve Gen drew great quarter, I wanted to ask Steve on global <unk> growing by $9 $6 million sequentially, just talk about the drivers here and the sustainability. Steve I know you mentioned shred is now fully rolled out improve search is doing better than the home feed ml, but any insights on the sustainability of this user growth would be.
Steve Huffman: Helpful and then Jen and drew I think the comment was the AD market is healthy, but would love to hear your thoughts as we get into the back half of the year, certainly tougher comps as well. Thank you.
Steve Huffman: Okay.
Steve Huffman: Yes.
Steve Huffman: So, user growth. We're happy with the results. The main driver of growth is the product is better. And so, yeah, we mentioned shredded performance. Both equals retention for users. Web performance also has been driving an increase in traffic from Google, which is driving the increase largely among logged out users, but logged in users, which is.
Ron Josie: Sure sure. Thanks, so yeah.
Steve Huffman: User growth.
Steve Huffman:
Steve Huffman: We're happy with the results.
Steve Huffman: The main driver of growth is the product is better and so yes, we mentioned shred it.
Steve Huffman: Performance, both equals retention for users.
Steve Huffman: What performance also has been driving an increase in traffic from Google, which is driving the increase in largely in the logged out users.
Steve Huffman: But logged in users which is.
Steve Huffman: The core of our business, the bedrock of our inventory, is also up 27% year over year, and the growth there is really driven by improvements in product quality. So sign up has gotten much more efficient, onboarding has gotten better, and then home feed relevance. So users find content that's relevant to them in their first sessions on Reddit, we've gotten much more effective at that. We feel confident looking forward because the growth that we've seen isn't, you know, it's not like a one-time spike. We've been adding users very consistently for the last year. Roughly 2 million users a month, or 7 of the last 10 months, and a million users in 8 of the last 10 months.
Steve Huffman: The core of our business the bedrock of our inventory is also up 27% year over year and the growth. There is really driven by improvements to product quality. So sign up has gotten much more efficient onboarding has gotten better.
Steve Huffman: <unk> home feed relevance so users.
Steve Huffman: Finding content that is relevant to them and their first sessions on read it and we've got much more effective at that.
Steve Huffman: We feel we feel confident looking forward because of the growth that we seen isn't.
Steve Huffman: It's not like a one time spike we spent adding users very consistently.
Steve Huffman: For the last year.
Steve Huffman: Roughly 2 million users.
Steve Huffman: A month or seven of the last 10 months and 1 million users.
Steve Huffman: Eight of the last months and so we.
Steve Huffman: And so we... Long story short, our work is working, focusing on product performance and quality, and that drives retention. I'd say the other thing we're looking forward to as we go forward is international growth. We're still 50-50 U.S. versus non-U.S., but our peers are more 80-90% non-U.S.
Speaker Change: Long story short our work is working.
Steve Huffman: Focusing on product performance and quality and that driving retention let's.
Steve Huffman: I'd say the other thing we're looking forward to as we go forward is international growth. We're still 50, 50 U S versus non U S.
Steve Huffman: But our peers are more 80% to 90% non U S and so I think there's a huge opportunity there.
Steve Huffman: So I think there's a huge opportunity there. I think one of the big unlocks for us in the near to medium term is machine translation. So we're translating our entire corpus, which is today mostly in English, into other languages and hope that that will help accelerate international. Jen, Drew, do you want to comment on the second half of the year outlook?
Steve Huffman: I think one of the big unlocks for us.
Steve Huffman: In the near to medium term is machine translation.
Speaker Change: Translating our entire corpus that's true.
Steve Huffman: Mostly in English into other languages.
Steve Huffman: But that will help accelerate international growth.
Jen Wong: Jan do you want to comment on the second half of the year outlook.
Jen Wong: Yeah, I'll kick it off and then go back to Drew. Look, I think the ad market is healthy. Brand advertising is as strong as it's been since 2022. We're feeling good.
Jen Wong: Yeah, I'll kick it off and then pass the Dru.
Speaker Change: I think he had market is healthy.
Jen Wong: Brand advertising is as strong as it's been since 2022.
Jen Wong: We're feeling good in many parts of our business are working well in Q1 in the first half.
Jen Wong: Many parts of our business are working well in Q1 and the first half and are well-positioned for the second half. So our strategies are gaining traction. You know, in ads, I like vertical diversification.
Jen Wong: Well position for the second half so our strategies are gaining traction.
Drew Valero: You don't add unlike the vertical diversification, we like the accelerated growth in the mid market channel and that both in North America and in Continental Europe.
Jen Wong: We like the accelerated growth in the mid-market channel both in North America and in continental Europe. So, a lot of positive traction. The reality is Q1 just had an easier comp. The 12% year-over-year growth from Q1 2023, we do have low visibility into the second half. And 80% of our revenue is in the US, and there is a US election, which could impact our advertisers' flight campaigns, especially brand advertisers. And there's also inflation in the geopolitical context.
Jen Wong: So a lot of positive traction.
Jen Wong: The reality is Q1 had an easier comp are the 12% European with growth from from Q1 2023, we drove low visibility into the second half and <unk>.
Jen Wong: 80% of our revenues in the U S and there is a U S election, which could impact our advertisers flight campaign.
Jen Wong: Especially brand advertisers and yeah, and there is also inflation geopolitical context.
Jen Wong: Some tougher comps in Q3 Q4, but we feel like we've had a really solid start strategy gaining traction we feel good.
Jen Wong: And some type of comps in Q3, Q4. But we feel like we've had a really solid start. Our strategy gained traction. We feel good. But we just have low visibility into the back end of the year. Let me pass to Drew to add some more color.
Drew Valero: But we just have low visibility into the back end of the year and let me pass to could you add some more color.
Drew Valero: Yeah, no, I think that's well said, Jen. I think that it was a good quarter for us, Ron, start to finish. Even March was very strong. I think, you know, as Jen mentioned, the comps in the first quarter were a little lower than the back half of the year there in the 20s. We also may have picked up some momentum from the IPO. Hard to say to identify that.
Drew Valero: Yeah, No I think Thats, well said Jan I think that it was a good quarter from us for US Ron start to finish even March was very strong I think.
Drew Valero: As Jim mentioned the comps in the first quarter, a little lower than the back half of the year Theyre in the twenties.
Drew Valero: You also may have picked up some momentum from the IPO of hard to say that to identify that but but we did sort of as I said see strength in March if you look on the cost side of things I.
Drew Valero: But we did, as I said, see strength in March. And look, on the cost side of things, I think we've found a good rhythm right now. I think in the last four quarters, total adjusted costs have been up five to 15 percent, kind of average nine percent. I think we're really at a place where we have good scale as a company and we're adding resources where it makes sense.
Drew Valero: I think we found a good rhythm right now I think in the last four quarters total adjusted costs have been up 5% to 15% kind of averaged 9% I think we're really at a place where we have good scale as a company and we're adding resources, where it makes sense that talked about adding resources in our machine learning teams and our sales teams.
Drew Valero: I talked about adding resources to our machine learning teams and in our sales teams. I think we're at a place where we have scale, and we're adding selectively. As you know, headcount is by far and away the biggest part of our cost driver. OPEX is 85 percent of total costs here, total adjusted costs here at the company.
Drew Valero: We are at a place where we have scale and we're adding selectively as you know.
Drew Valero: Head count is by far and away the biggest part of our cost driver Opex is 85% of total costs here total adjusted costs here at the company. So I think we feel good at least for the next couple of quarters on how we're thinking about things, but we'll see how it plays out and I Echo John's sentiments on the kind of the headwinds and <unk> on the back half of the year and the things that we're watching.
Operator: So I think we feel good, at least for the next couple of quarters on how we're thinking about things, but we'll see how it plays out. And I echo Jen's sentiments on the kind of headwinds and tailwinds for the back half of the year and the things that we're watching. Our next question comes from Doug Anmuth from J.P. Morgan. Please go ahead; your line is open. Thanks for taking the questions. I have two, one for Steve and one for Drew. Steve, you highlighted the large opportunity in on-platform search. Can you just talk about what excites you here for both?
Operator: Our next question comes from Doug Anmuth from J.P. Morgan. Please go ahead; your line is open.
Operator: Our next question comes from Doug Anmuth from Jpmorgan. Please go ahead. Your line is open.
Doug Anmuth: Thanks for taking my questions I have two one for Steve one for drew Steve you highlighted the large opportunity in on platform search can you just talk about what excites you here for both users and with advertisers and then drew if you could just follow up on those comments a little bit more on the investment philosophy. This year you pulled back.
Doug Anmuth: <unk> in 'twenty three that we're obviously seeing big Incrementals in <unk>, just how do we think about that buybacks spread between revenue growth and cost growth as you go through the course of the year and beyond thank you.
Steve Huffman: Sure, thanks. So, the first question is about platform search. So, a ton of our users run searches in their first session on Reddit. And so when I talk about, you know, one of the biggest challenges and opportunities we face is helping users find their home on Reddit, many of them are typing into a box exactly what they're interested in.
Doug Anmuth: Sure. Thanks.
Doug Anmuth: First question is on on platform search so.
Steve Huffman: Like a ton of our users run searches and their first session on right and so when I talk about.
Steve Huffman: One of the biggest challenges and opportunities we face being helping users find their home on rabbit.
Steve Huffman: Many of them are tightening into a box exactly what they are interested in.
Steve Huffman: And so, from a user experience point of view, on platform search on Reddit being great is a huge opportunity. Now, we do over a billion queries per month on Reddit, but I think there's an opportunity for quite a bit more. So we've been investing in our search back end; some quality of life features like spell check and autocomplete are coming online as we speak. We've got some, I think, very sensible and overdue improvements to the user interface coming this year as well.
Steve Huffman: So I think just from a.
Steve Huffman: User experience point of view.
Steve Huffman: <unk> platform search on Red at being great is a huge opportunity.
Steve Huffman: Now today, we do over 1 billion queries per month on <unk>, but I think there is an opportunity for quite a bit more so we've been investing in our search backend. Some quality of life features like Bell track in order complete are coming online as we speak and we've got some.
Speaker Change: Thank you.
Steve Huffman: It's very sensible and overdue improvements to the user interface.
Steve Huffman: Coming up this year as well.
Steve Huffman: And then, uh... As the search product itself gets better, of course, then there's an opportunity to monetize those pages. So there are no ads today on search result pages, but that's obviously a very high-performing product elsewhere on the internet, and I think there's no reason to believe that it wouldn't be for Reddit as well, because the intention is so explicit when users are searching.
Steve Huffman: And then.
Steve Huffman: As the search product itself gets better of course, then there is an opportunity to monetize those pages. So there are no ads today on search result pages.
Steve Huffman: But that's obviously a very.
Steve Huffman: High performing product elsewhere on the Internet.
Steve Huffman: And I think there's no reason to believe that it wouldn't be for read it as well because the intention is so explicit when users are searching so.
Steve Huffman: So... first step, improve the product for users. And then I think when we feel like we're in, have a good foundation there, we'll start looking at the monitor. Drew, I think the next question was investment philosophy. Yeah.
Steve Huffman: <unk> improved the product for users.
Steve Huffman: And then I think when we feel like we have a good foundation there we'll start looking at monetization.
Steve Huffman: Drew I think the next question was investment philosophy.
Drew Valero: Yeah, investment philosophy. Doug, thanks for the question.
Drew Valero: Yes, the investment philosophy, Doug. Thanks for the question look in terms of the investment philosophy. It Didnt change here.
Drew Valero: Look, in terms of the investment philosophy, it didn't change here. Your point about revenue five times as fast as cost, yes, nice to see, for sure. But it really was about the revenue line or the numerator expanding. For the last three quarters, we've averaged about 23% revenue growth. This quarter, 48.
Drew Valero: Your point about revenue five times as fast as cost, yes, nice to see for sure I'm really bullish about the revenue line or the numerator expanding last three quarters, we've averaged about 23% revenue growth. This quarter 48, if I look at our total adjusted cost growth last four quarters has been 9%. This quarter was 9% so the investments in the business stayed.
Drew Valero: If I look at our total adjusted cost growth over the last four quarters, it has been 9%. This quarter was 9%. So the investments in the business stayed the same or consistent with the four-quarter average. But what really happened here is we were able to leverage those resources and really drive a top line that was meaningfully different, double the growth rate over the last three quarters. So I think that's really what happened in terms of that. I will tell you that's an output metric. We didn't sort of design the quarter to be that way.
Drew Valero: The same are consistent with our four quarter average really happened here is we were able to leverage those resources and really drive a top line that was meaningfully different double the growth rate over the last three quarters. So I think that's really what happened in terms of that I will tell you. That's an output metric we didn't design the quarter to be that way I think internally long term Doug.
Drew Valero: I think internally, long-term, Doug, we'd like our revenue growth rate to be twice as fast as our cost growth. That's how we think about running this business over the long term. But there are certainly quarters where we can do better than that, and I think the first quarter was a prime example of that.
Drew Valero: Wed like our revenue growth rate to be twice as fast as our cost growth like that's how we think about running this business over the long term, but there are certainly quarters, where we can do better than that and I think the first quarter was a prime example of that.
Operator: Our next question comes from Brian Nowak from Morgan Stanley. Please go ahead, your line is open. I have two. The first one is on the strong user growth. Is there any way you can sort of help us unpack a little bit the benefit of
Operator: Our next question comes from Brian Nowak from Morgan Stanley. Please go ahead; your line is open.
Drew Valero: Our next question comes from Brian Nowak from Morgan Stanley. Please go ahead. Your line is open.
Brian Nowak: Thanks for taking my questions I have two the first one just on the on the strong user growth is there any way you can sort of help us unpack a little bit the benefit of the new Google partnership maybe any quantification of the incremental traffic or what you saw in traffic trends coming out of that from Google and then I guess to follow up on that where are you on.
Brian Nowak: The Google SGA integration should we think of it as sort of our more queries, you're going to be integrated in over the course of the year to make this tailwind grow or sort of how does that how does that relationship work.
Steve Huffman: Sure, Brian, let's dive in. The biggest factor driving user growth is performance and product quality, because that's what's driving retention, and so retention compounds into growth over time. Yes, we're seeing a tailwind from Google, and you can see that in our logged out numbers. But that's not, uh, the.
Operator: Yes.
Brian Nowak: Sure Brian.
Operator: The look.
Steve Huffman: The biggest factor driving.
Steve Huffman: User growth is the performance in product quality.
Steve Huffman: Because that's what's driving them.
Steve Huffman: That's what's driving.
Steve Huffman: Retention and so retention compounds into.
Steve Huffman: Into growth over time.
Steve Huffman: Yes, we're seeing a tailwind from Google and you can see that in our.
Steve Huffman: Logged out numbers.
Steve Huffman: But that's not.
Steve Huffman: <unk>.
Steve Huffman: The agreement we have with Google around the data training has nothing to do with traffic. I think really the, the most, the biggest driver of uptick and traffic from Google is also speed. Googlebot likes speed. It keeps track of the performance of the pages it crawls, and we made those pages, in some cases, more than twice as fast. In some cases, up to five times as fast.
Steve Huffman: The agreement, we have with Google around.
Steve Huffman: The data training that has nothing to do with traffic I think really the most.
Steve Huffman: The most the biggest driver of uptick in traffic from Google is also performance.
Steve Huffman: Google bought like speed it keeps track of.
Steve Huffman: The performance of the pages across and we made those pages in some cases.
Steve Huffman: More than twice as fast in some cases up to five times, a fast and so that has a huge improvement in rates and ranking.
Steve Huffman: And so that made a huge improvement in ranking. You know, we do see algorithm changes from Google. Usually, you can expect maybe two a year. But sometimes they help, sometimes they hurt. But you'll never hear us celebrating or complaining about those.
Steve Huffman: We do see.
Steve Huffman: Algorithm changes from Google.
Steve Huffman: Usually you can expect maybe two a year.
Steve Huffman: But sometimes sometimes that helps sometimes they hurt so youll never hear of celebrating our complaining about those but you can see the consistency in our growth for the last year right over 1 million users a month.
Steve Huffman: But you can see the consistency in our growth for the last year. Right, over a million users a month, basically, for the last year. And so that's been... I think that's been really strong and consistent and speaks to the foundational improvement.
Steve Huffman: Wait for the last year.
Steve Huffman: And so thats been.
Steve Huffman:
Steve Huffman: I think that's been really strong and consistent and speaks to the foundational improvements.
Steve Huffman: And then I think there's a secular trend that benefits Reddit, which is... In the AI era, people value authentic content more, right? Content written by humans. And that's what Reddit is, and that's what Reddit has. So I think there's a thirst for authentic opinions and advice and commentary and just conversation. And so I think that's the kind of irony of the technology shift that we're going through is that the value of humans and fresh ideas continues to grow.
Steve Huffman: And then I think theres, a secular trend that benefits read it which is.
Steve Huffman: The AI era people value.
Steve Huffman: Fintech content more content written by humans and Thats, what <unk> is and that's what made it house. So I think there's a.
Steve Huffman: As a thirst for authentic opinions and advice and commentary and just conversations.
Steve Huffman: So I think that's the that's the kind of Irene.
Steve Huffman: Hum.
Steve Huffman: The technology shift.
Steve Huffman: That we're going through it's the value of humans and fresh ideas continues.
Steve Huffman: <unk> continues to continues to grow now.
Steve Huffman: Now, in terms of the Google experiences, you know, how their product impacts Reddit, look, that's one of the things we're considerate of when we do any sort of any sort of deal, which is like, how do you display Reddit data, making sure that folks link to us in that sort of thing. And so, look, I feel pretty confident in how this will play out.
Steve Huffman: Now in terms of.
Steve Huffman: The Google experiences.
Steve Huffman: Yes.
Steve Huffman: How their product impacts shred, it but thats one of the things were considered us when we do any sort of any sort of deal with just like how do you display red at that making sure that folks linked to us.
Steve Huffman: And that sort of thing.
Steve Huffman: So look I feel pretty confident.
Steve Huffman: And how this will play out.
Operator: Like we've been a beneficiary of Reddit being in search and on Google for a long time. And so I think Reddit being well-indexed is good for our respective companies, but most importantly, it's good for the end user who gets to find answers to their questions. It brings new users to Reddit and helps them find their home on Reddit. And so I think, you know, Google getting better and better at displaying our content can only help. And we've seen that play out for us.
Steve Huffman: We've been a beneficiary of red at being in search and in Google for a long time.
Operator: And so I think.
Operator: Read it being well indexed is good for our respective companies, but most importantly, it's good for the end user who gets to find answers to their questions gets the it brings new users to read it it helps them find their home on rabbit.
Operator: So I think Google is getting better and better at displaying our content can only help and we've seen that play out for you.
Operator: Over a decade now.
Operator: Our next question comes from Justin Post from Bank of America. Please go ahead; your line is open.
Operator: Our next question comes from Justin Post from Bank of America. Please go ahead. Your line is open.
Steve Huffman: Great. I'd like to ask one more question about users and then just guidance philosophy. Certainly a good user quarter. Just wondering about retention and churn. Are you seeing more people come at the top of the funnel, and that's driving it? We're talking about people who are logged in, of course. Or are you just seeing less churn, or are people coming in more frequently so weeklies are coming in daily, or is that everything? But maybe a little more color on that.
Justin Post: Great I'd like to ask one more about users and then just guidance philosophy, certainly a good user quarter, just wondering about retention and churn are you seeing more people come into the top of the funnel.
Steve Huffman: That's driving it yes, I'm talking about Lockdown of course or are you just seeing less churn or are people coming in more frequently so weeklies are coming in daily or is it everything but maybe a little more color on that and then drew maybe on the guidance. Since this is your first quarter, just tell us a little bit more about your guidance philosophy.
Drew Valero: And then Drew, maybe on the guidance, since this is your first quarter, just tell us a little bit more about your guidance philosophy. You know, sequential is maybe a little less than last year. Maybe it was a really tough comp, but just tell us how you think about the guidance that you want to provide each quarter. Thank you.
Drew Valero: Sequential is maybe a little less than last year, maybe it was a really tough comp, but just tell us how you think about guidance that you want to provide each quarter. Thank you.
Steve Huffman: Sure. So on users, credit has long had a massive top of funnel. You know, we've been reporting, um, more than 500 million monthly users for quite some time. Now, we only update that user, uh, that number periodically because we really run the business on dailies and weeklies. And so, but the way we think about it is that we need to improve user retention. Like, we're pretty confident that just about every user on the internet is going to bounce off Reddit, period. Whether it's through search or word of mouth or this or that.
Drew Valero: Sure. So on users the credit has long had a massive top of funnel we've been reporting.
Steve Huffman: More than 500 million monthly users for quite some time now.
Steve Huffman: On the update that user that number periodically because we really run the business on dailies and weeklies.
Steve Huffman: And so but the way we think about it is.
Steve Huffman: To improve user retention.
Steve Huffman: We're pretty confident that just about every user on the internet is going to bounce off threat. It periodically.
Steve Huffman: Whether it's through search or word of mouth or this or that.
Steve Huffman: The challenge for us is can we retain those users. And so that's why our focus has been on quality performance onboarding, and so we've seen really nice improvements to new user retention and user user resurrections, and so bringing old users back. And so those are the input metrics that we really, you know, look at when we're building new products, and those compound in the growth. So that's why I keep saying I think what we've done is made improvements to the foundation, and we get to, we get to mine those improvements for some time as opposed to, you know, this was maybe a one-time, a one-time shift or things, you know, we had a good The product is simply better, and we're benefiting from that. Okay, second question. I think Drew was on guidance. Right?
Steve Huffman: The challenge to US is can we retain those users and so that's why our focus has been.
Steve Huffman: On quality performance Onboarding, and so we've seen really nice improvement too.
Steve Huffman: New user retention and user.
Steve Huffman: User resurrection, and so bringing old users back in so those are the input metrics that we really.
Steve Huffman: Yeah.
Steve Huffman: Look at when we're building new products and those compound in the growth. So that's why I keep saying I think what.
Steve Huffman: What we've done is made improvements to the foundation and we get them and get their mind those improvements for for some time as opposed to.
Steve Huffman: This was maybe a one time.
Steve Huffman: A onetime shift or things, we had a good quarter.
Steve Huffman: The product is simply better and we're benefiting from that now.
Speaker Change: Okay second question I think drew is on guidance.
Drew Valero: Right. Just in high-level terms, we will guide on a quarterly basis one quarter ahead. We will do revenues, and we'll do adjusted EBITDA. That's what we're comfortable with at this time. In terms of the second quarter guide, I take your point. We grew 48 percent in the first quarter. The midpoint of the guide is the mid-30s, so there is a bit of a little bit of a decel
Steve Huffman: Right.
Jetson: Jetson high level, we will guide on a quarterly basis, one quarter ahead, we will do revenues and we will do adjusted EBITDA.
Drew Valero: While we're comfortable with at this time in terms of the second quarter Guide I take your point we grew.
Drew Valero: 48% in the first quarter the midpoint of the guide is mid thirties. So there is a bit of a little bit of a T cell. There look I think as we mentioned it was a strong quarter for us top to bottom. The month of March was very good for us as I mentioned I think we're just looking at the comps a little bit I think that's a little bit driving where we are at this point that accomplish this.
Drew Valero: Look, I think, as we mentioned, it was a strong quarter for us top to bottom. The month of March was very good for us, as I mentioned. I think we're just looking at the comps a little bit. I think that's a little bit driving where we are at this point. The comp was, as Jen mentioned, 12 percent in the first quarter. Now it's 23.
Drew Valero: As Jen mentioned, 12%.
Drew Valero: In the first quarter. The accomplished 23, I do think we might've gotten a little bit of tailwind from the IPO in the first quarter, we will see if those tail winds continue to do a couple of other things that kind of worked in our favor in the first quarter right you get an extra day with leap day Easter was a little bit earlier like all things kind of work a little bit but overall as John said, it's a good solid start to the year for us and we'll sort of see how we do.
Drew Valero: I do think we might have gotten a little bit of a tailwind from the IPO in the first quarter. We'll see if those tailwinds continue. A couple other things that kind of worked in our favor in the first quarter. You get an extra day with leap day. Easter was a little bit earlier.
Drew Valero: All things kind of worked a little bit. But overall, as Jen said, it's a good solid start to the year for us, and we'll sort of see how we do. I think the bigger picture. We're keeping our eye on a couple of things, particularly geopolitics. That is the one thing that can affect you inter-quarter. Depending on sort of what the geopolitical situation is, brand advertisers can pull advertising if things aren't where they want it to be from time to time.
Drew Valero: I think bigger picture, we're keeping our eye on a couple of things, particularly geopolitics like that is the one thing that can affect your intra quarter, depending on sort of what the geopolitical situation is brand advertisers can pull advertising if things arent, where they want it to be from time to time. So those are the that's probably the biggest one we're looking at inflation and elections to those of the other couple of things that we take a look at but.
Drew Valero: That's probably the biggest one. We're looking at inflation and elections, too. Those are the other couple of things that we take a look at. But overall, it was a good quarter, and we ended with momentum. We'll see how the second quarter plays out. But it really is kind of comp-driven and sort of a couple of tailwinds that we had in the first quarter.
Drew Valero: But overall it was a good quarter first quarter and we ended with momentum we'll see how the second quarter plays out, but it really is kind of comp driven and sort of a couple of tail winds that we had in the first quarter, we will see if they continue the second.
Operator: Our next question comes from Eric Sheridan from Goldman Sachs. Please go ahead; your line is open. Thank you so much.
Operator: We'll see if they continue. Our next question comes from Eric Sheridan from Goldman Sachs. Please go ahead, your line is open. Thank you so much. Maybe I could just get a two-parter for Jen. Jen, when you're out talking to advertisers and thinking about the future of the platform, number one, you know, which platform?
Drew Valero: Our next question comes from Eric Sheridan from Goldman Sachs. Please go ahead. Your line is open.
Eric Sheridan: Thank you so much maybe if I could just a two parter for Jim Jim.
Eric Sheridan: Talking to advertisers are thinking about the future of the platform number, one, which which platform initiatives and product initiatives are resonating. The most in terms of driving either advertiser count or advertising spend as we get deeper into the 2020 for budget cycle and as you go out and have those conversations what is still the big <expletive> our friction.
Eric Sheridan: Points, you and the team are trying to solve for to bring more advertiser count budget, even beyond 2024 on your long term roadmap. Thank you.
Eric Sheridan: Thanks for the question.
Jen Wong: Thanks for the question. You know, I'd say, um...
Eric Sheridan: Yeah I'd say.
Jen Wong: I think our aspiration to be a leader in contextual interspace advertising is very differentiated, and it resonates with all of our advertising partners. And the idea that Reddit can be a full funnel solution is very attractive, and we've made good progress on that. Since we started at the top of the funnel with Brand, I think we have really done a lot of work and delivered a lot of performance and efficiency at the mid part of the funnel with the continuing growth in click-through rates and click volume.
Eric Sheridan: I think our.
Eric Sheridan: Operation to be a leader in Quechua Interstates advertising is very differentiated and it resonates with our.
Jen Wong: With all of our advertising partners and the idea that really can be a full funnel solution. I think is very attractive and we've made good progress against that.
Jen Wong: Starting at the top of the funnel with brand I think we have really got a lot of work and delivered a lot of performance and efficiency at the mid part of the funnel with continuing growth in click through rate and click volume.
Jen Wong: And now with launches like dynamic product ads and you had the catalog in gas last year and the work we're doing in Africa Dong conversions at the bottom in the funnel I think advertisers see how seriously our and delivering value at the bottom of the funnel. So this idea of being full funnel and being differentiated in terms of our our targeting.
Jen Wong: And now, with launches like dynamic product ads, and we had the catalog ingest last year, and the work we're doing in app installs and conversions at the bottom of the funnel, I think advertisers see how serious we are in delivering value at the bottom of the funnel. So this idea of being a full funnel and being differentiated in terms of our targeting capabilities, I think is really resonating. We are focused on laying down signals for the bottom end of the funnel. So, you can see the work we did with a Google Tag Manager partnership and Telium. We'll look at more of those later.
Jen Wong: I think it's really resonating.
Jen Wong: We are focused on laying down signals for the bottom end of the funnel. So you see the work we did with <unk>.
Jen Wong: <unk> manager of partnership in <unk>.
Jen Wong: So Cappy and the conversion API are incredibly important for signals into the models that we're building at the bottom end of the funnel and just working with advertisers to start testing spend against these solutions and continue to iterate. So I think there's real excitement about, "Wow, you're doing great in brand and mid funnel, and now the lower end of the funnel is potentially going to open up for us to go truly full funnel." That's really, really exciting. So that's what our advertisers are, I think, particularly excited about to just have that additional objective.
Jen Wong: Looking more barrels so Kathy and conversion with guy incredibly important.
Jen Wong: Our signals into the models that we're building at the bottom end of the funnel and just working with advertisers to start testing spend against the solution and continue to iterate. So I think there is real excitement about Wow, you youre doing great and brand and mid funnel and now the blower and the final is potentially going to open up for us to go truly fulfill.
Jen Wong: That's really really exciting.
Jen Wong: So that's what our appetizers are I think particularly excited about to just to have that additional objective.
Operator: Our next question comes from Benjamin Black from Deutsche Bank. Please go ahead; your line is open. Great.
Jen Wong: Our next question comes from Benjamin Black from Deutsche Bank. Please go ahead. Your line is open.
Operator: Great Thank you for the question, Steve. I know you're pretty excited about the developer program and you know how that could be transformative longer term, but you know, more near-term, what are some of the investments that are necessary to build that out even faster, and could the sort of developer platform have, you know, potential positive implications for the ad business as it grows? And then the second one, I'm not sure if this is for Drew or for you, Steve, but obviously, a big quarter of logged out user growth, but just given the fact that logged in users monetize at a slightly higher rate, it just sort of helps us understand what the strategy is to convert more of the logged out users to logged in. Thank you.
Benjamin Black: Great. Thank you for the question Steve.
Benjamin Black: I know you're pretty excited about the developer program and how that could be transformative longer term, but.
Operator: More near term what are some of the investments and see it.
Operator: Is there to build that out even faster and could the developer platform has potential positive implications for the AD business is the growth and then the second one I'm not sure. If this is the draw when you see it but.
Operator: Obviously, a big quarter of logged out user growth, but just given the fact that logged in users monetize at a slightly higher rate.
Operator: Sort of help us understand what the strategy is to convert more of the logged out users to love them. Thank you.
Operator: Yes.
Steve Huffman: Thanks for the questions, Ben. So first, the developer platform. Yes, I am very excited about it, but I would actually train the developer platform as a relatively near-term opportunity. We've got a couple hundred developers playing with it now, and some of their work is in production as we speak, so some of the kind of scoreboards and stock tickers and things like that, but we can see in development another level of interactivity.
Speaker Change: Thanks for the questions then so first.
Steve Huffman: Developer platform, yes, I am very excited about it.
Steve Huffman:
Steve Huffman: But I would actually train the developer platform as a relative near term opportunity.
Steve Huffman:
Steve Huffman: We've got.
Steve Huffman: A couple of hundred developers playing with it now.
Steve Huffman: Some of there.
Steve Huffman: Some of their work.
Steve Huffman: As in production.
Steve Huffman: As we speak so some of the kind of Scoreboards and stock pickers and things like that but we can see in development another level of interactivity.
Steve Huffman: Our goal is to get this fully open so all of the developers on our wait list, and there are thousands, really like call it this summer, and then start getting the monetization features in there later this year. And so I think there's a lot of opportunity there, all hands on deck, trying to bring this to market.
Steve Huffman: Our goal is to get this.
Steve Huffman: Fully open.
Steve Huffman: So all of the developers off our waitlist and Theres thousands.
Steve Huffman: At like call. It this summer.
Steve Huffman:
Steve Huffman: And then started getting them monetization features in there later this year and so I think there's a lot of them a lot of opportunity there all hands on deck.
Steve Huffman: To bring this to market so I think the developer platform.
Steve Huffman: So I think the developer platform and the new Reddit Gold and the user economy kind of dovetail together really nicely later this year. In terms of the dynamic between logged out and logged in, yes, the bedrock of our business today is logged in users. And we see plenty of logged-out users, particularly from Google. But I don't think, from a product point of view, the best strategy for us is to try to convert a logged-out user into a logged-in user in any particular session.
Steve Huffman: And the new Red at gold and the user economy kind of dovetail together really nicely.
Steve Huffman: Later later this year.
Steve Huffman: In terms of.
Steve Huffman: Sure.
Steve Huffman: The dynamic between logged out and logged in.
Steve Huffman: Yes, the bedrock of our business today is logged in users.
Steve Huffman: We can.
Steve Huffman: And we see plenty of logged out users, particularly from Google.
Steve Huffman: Okay.
Steve Huffman: But I don't think.
Steve Huffman: From a product point of view.
Steve Huffman: Best strategy for us is to them.
Steve Huffman: Try to convert a logged out user into a logged out users logged in user in any particular session.
Steve Huffman: They're usually coming from a search, they have a question, and we need to give them, you know, what they're looking for is an answer, and we want to give them that answer. Um, now I would look at the total VAU and think of that as the opportunity down the road.
Steve Huffman: They usually coming from search they have the question and we need to give what they're looking for is an answer and we want to give them their answer.
Steve Huffman: Now I would look at the total da U S.
Steve Huffman: Look I think of that a bit like opportunity down the road.
Steve Huffman: Those are users; those are human beings that are on the Reddit platform for various reasons. We just know that in any particular session, not everybody's looking to join a community and have a profound experience. Sometimes they just want an answer to the question, and that's okay.
Steve Huffman: Those are users those are human beings that are on the <unk> platform.
Steve Huffman: For various reasons, we just know that in.
Steve Huffman: Any particular session not everybody is looking to join a community and have a profound experience sometimes they just want an answer to that question and thats. Okay.
Steve Huffman: The other thing I think that's really important is that we grow our ability to monetize logged out users. Most of them are landing on what we call a post detail page or a comment page, which is a very specific page. In many cases, it's talking about a specific prompt.
Steve Huffman: Other thing I think that's really important.
Steve Huffman: Is that we.
Steve Huffman: Yeah.
Steve Huffman: Grow our ability to monetize logged out users.
Steve Huffman: Most of them are landing on what we call a post detail page or a comment page just a very specific page in many cases, it's talking about a specific product.
Steve Huffman: There is an ad unit on that page, but I'd say we're still in the early days there, getting advertiser density so that we can have a well-targeted ad on all of those pages, lots of potential and monetizing logged out users. So, in summary, I would look at it, the logged out users today represent potential for future logged in users. They also represent potential and monetization in their own right as well. But from a product point of view, we focus on the logged-out users having a great experience for what they're trying to do. And when a user hits us, you know, opening the app for the first time or coming to our front page, we really focus on giving them a great experience to maximize their
Steve Huffman: There is an AD unit on a H, but I'd say, we're still in early days there getting advertiser density.
Steve Huffman: So that we can have a well targeted AD on all of those pages and so I think there is.
Steve Huffman: Lots of potential and monetizing logged out users. So in summary, I would look at it.
Steve Huffman: The logged out users today represent potential for future logged in users. They also.
Steve Huffman: Represent potential and monetization in their own right as well.
Steve Huffman: But from a product point of view, we focus on them.
Steve Huffman: The logged out users, having a great experience for what they're trying to do and when you use our hits US opening the app for the first time are coming through our front page really focusing on giving them a great experience to maximize their retention.
Operator: Our next question comes from Tom Champion on Piper Sandler. Please go ahead, your line is open.
Steve Huffman: Our next question comes from Tom Champion from Piper Sandler. Please go ahead. Your line is open.
Operator: Hi, good afternoon. Steve, I'm wondering if you could talk a little bit more about the machine translation tools that you're building, and maybe with an eye towards the overseas market. I think the release talks a little bit about French, or the French language maybe being somewhat underway, and I'd be just curious what you're seeing with the user trends, maybe in France or other French markets or countries. You know, maybe for Drew or Jen, very early days in data licensing, and I think we're all very interested in it, and just curious about the early learnings, either financially or the potential with the product. Any thoughts you have there would be really helpful. Thank you.
Tom Champion: Hi, good afternoon.
Operator: Afternoon.
Tom Champion: Steve I'm wondering if you could talk a little bit more about the.
Operator: Machine translation tools that Youre building in and maybe with an eye towards the overseas market I think.
Operator: The release talks a little bit about France, the French language, maybe being.
Operator: Got underway and just just curious.
Operator: What youre seeing with the user trends in maybe in France or other French speak.
Operator: Speaking countries and then.
Operator: Maybe four for drew or <unk>.
Operator: Jen.
Operator: Very early days in data licensing and I think we're all very interested in it and just curious the early learnings either financially.
Operator: The potential with the with the product any any thoughts there would be really helpful. Thank you.
Steve Huffman: Thanks, great question. So the first one on translation, so one of the things I think that's most exciting for us with the large language model is the ability to do translation at human level quality. This was just quite simply technology that didn't really exist a year ago, and now we can translate Reddit's entire corpus into another language. And so French is the first language we're doing this in. It's in testing now, and the results are looking very promising.
Steve Huffman: Thanks, Great question. So the first one on translation.
Steve Huffman: Other things I think that's.
Steve Huffman: Most exciting for us with large language models.
Steve Huffman: Is the ability to.
Steve Huffman: Do translation at human level quality. This was just quite simply technology that didn't really exist a year ago.
Steve Huffman: And now we can.
Steve Huffman: Translate right its entire corpus into another language and so.
Steve Huffman: Francis the first language, we're doing this and it's in testing now and the results are looking very promising and so if you're a user in.
Steve Huffman: And so if you're a user in France, in this test group, you can see all of Reddit, including big blue chip communities like AskReddit, entirely in French. And so this is leading to, as we would hope, improved retention and time on site, and then growth among these users. And they're also seeing this content get indexed by French-language Google.
Steve Huffman: In France.
Steve Huffman: In this test group you can see all of threat, including like Big Blue Chip communities like ask credit.
Steve Huffman: Entirely in French.
Steve Huffman: So this is.
Steve Huffman: Leading to.
Steve Huffman: We would hope.
Steve Huffman: <unk> retention and time on site and then growth among these users and they're also seeing this content get index.
Steve Huffman: By French language, Google and so are we starting to see.
Steve Huffman: And so we're starting to see new users coming to that content as well, and so I think this is a really promising start here. We're going to do more languages this year as we get the product polished. The next one would be Spanish, which I think represents a pretty big opportunity. So this is very exciting. I think I keep saying everybody has a home on Reddit.
Steve Huffman: New users coming to that compound as well and so I think really promising start here, we're going to do more languages.
Steve Huffman: More languages this year.
Steve Huffman: As we get the product polished, but the next one would be Spanish, which I think represents a pretty big opportunity. So this is very exciting I think I keep saying everybody has a home on red it today that's it.
Steve Huffman: Today, that's a true statement if you speak English. But we want to make that a true statement for everyone in the world. I think it's not a matter of if, but when. But we want to make that happen as fast as possible. And so I think this represents our best shot at dramatically accelerating our growth outside the US in a non-English speaking world. Um, the second question was about, uh, data licensing
Steve Huffman: It's a true statement, if you speak English, but we want to make that a true statement for everyone in the world.
Steve Huffman: I think it's not a matter of if but when but we want to make that Atlanta as fast as possible and so I think this represents our best shot at dramatically accelerating our growth outside the U S and the non English markets.
Jen Wong: Thanks, Steve. So on data licensing, Steve mentioned it was truly a barbell business where one part of the business is well-established markets, things like social listening, maybe financial markets. In social listening, I think, you know, we've learned there's clearly an established market. There's interest in Reddit data for insights that lead to business decision making, and marketing decision making. And it is a new market that I think has potential to grow over time, but there are a lot of players and a lot of players and sort of smaller deals, but an established market. I'd say another learning is that at this barbell size, we'll take certain verticals like finance, et cetera, which are a little bit outside of our domain.
Steve Huffman: Second question was about our satellite sensing for Bart.
Jen Wong: With that.
Speaker Change: Thanks, Steve.
Jen Wong: They don't like Steve mentioned really a barbell business, where one part of the business is well established markets things like social listening in the financial markets.
Jen Wong: And social listening I think we've learned there's clearly a established market theres interest embedded data or insights that lead to enhance decision, making marketing decision making.
Jen Wong: And it is a new market that I think has potential to grow over time, but it's a lot of players and.
Jen Wong: A lot of players in sort of smaller deals, but establish market. Let's say another learning is barbell size will take a certain verticals like <unk>.
Jen Wong: Finance et cetera, which are a little bit outside of our domain.
Jen Wong: You know, potentially working with partners who have access to distribution is very interesting to us as we learn those markets. So that's something that we're thinking about on the other side of the barbell, which is fewer deals, fewer partners, and probably a handful, but larger are the folks who are, you know, AI model builders. And on that side, I say, you know, these are midterm deals is how we think about them because it's such a nascent and early market that we want to see how things unfold. So not forever, but long enough to understand value.
Jen Wong: Potentially working with partners, who have access to distribution is very interesting for us as we learned most market.
Jen Wong: So that's something that we're thinking about.
Jen Wong: On the other side of the barbell char fewer.
Jen Wong: A few of our partners and probably handful, but larger R&D.
Jen Wong: Folks who are AI model.
Speaker Change: And on that sorry to say.
Jen Wong: These are midterm deals is how we think about them because it's such a nascent and early market that we want to see how things unfold, so not forever, but long enough to understand.
Jen Wong: Value.
Jen Wong: User privacy is very important to us, and that's very important in how we craft these partnerships and consider partnerships. Making sure that users, when they have edits and deletions, are respected is very important to us. I say partners where we're non-competitive and where we can grow together. You know, it's not always the case, and so we just want to be sure that, you know, the partners are the right fit, even over the midterm. So those are the things that I think we've learned from this. I'd say the AI partnerships that we're sort of more selective given all of those pieces.
Jen Wong: Is your privacy is very important to us and thats.
Jen Wong: Very important in how we craft these partnerships and consider partnerships, making sure that users.
Jen Wong: When they have added and deletions are respected is very important to us.
Jen Wong: I would say partners, where we're not competitive and where we can grow together.
Jen Wong: It's not always the case and so we just wanted to ensure that the partners are right fit even over the mid term. So those are the things that I think we've learned in the I'd say the AI partnerships that were sort of more selective given all of those pieces.
Speaker Change: I was going to add.
Drew Valero: I was going to ask you a question. Yeah, let me add two things on the financial side, Tom, both positives. I think, as Jen said, in the barbell market, it's been nice to see on the smaller side that there are seven-figure deals available there. And so it's been nice to see the team work hard and get them done. So that's been a benefit for a company like ours. And then the other piece is just, you know, so the cost of putting together the data as we're pulling it, you know, it's a high gross margin business to begin with, this has really been a creative to our business that the cost of preparing the data is probably a little less than we thought it would be and really flows through quite well in the P&L, one of the keys to success that you see in our first quarter numbers.
Speaker Change: Yeah, Let me add two things on the financial side, Tom both positives I think.
Drew Valero: As Jim said in the barbell market, it's been nice to see on the smaller side.
Drew Valero: There are seven figure deals available there and so that's been nice to see the team work hard and get those done so thats been a benefit for a company like ours and then the other piece is just so the cost of putting together the data as well as we're pulling it.
Drew Valero: It's a high gross margin business to begin with this has really been accretive to our business that the cost of preparing the data is probably a little less than we thought it would be and really flow through quite well in the P&L is one of the keys to success that you see in our first quarter numbers.
Operator: Our next question comes from Richard Greenfield from LightShed Partners. Please go ahead; your line is open.
Drew Valero: Our next question comes from Richard Greenfield from <unk> Partners. Please go ahead. Your line is open.
Operator: Hi, thanks for taking the question. Um, you know, I guess, you know, I wanted to follow up Steve on your answer about Google. You really talked about how Google indexing for AI will ultimately be good for Reddit in the long term, but I guess what I love to reconcile or help understand is when consumers are using AI platforms, like I go on chat GPT, or I go on Gemini. And when I'm searching for something, I'm sure I'm getting content that I believe is coming from Reddit, but it doesn't say this came from Reddit or this. Like when I go to Google and do a Google search, I get a very clear set of links that say these are from Reddit. And I clicked on them, and I went to a Reddit page.
Richard Greenfield: Hi, Thanks for taking the question.
Richard Greenfield: I guess I wanted to follow up Steve on your answer about Google.
Operator: Really talking about how Google indexing for AI will ultimately be good for already.
Operator: In the long term, but I guess, what I'd love to reconcile our help understand is when consumers are using AI.
Operator: One chat GPT go on Gemini and <unk>.
Operator: I'm searching for something I'm sure I'm getting content that I believe is coming from read it but it doesn't say this came from ready to wear this like when I go to Google and do a Google search again, a very clear set of links and say.
Operator: These are from read it and I like like go to already page.
Steve Huffman: That doesn't happen in AI. Will that happen in AI? Is that the future that we see? And I'm just trying to understand traffic. Does traffic end up slowing for things like reddit.com and for your app versus these applications where you're making money? How do you see this evolving? Because I think it obviously is impactful to your brand and what your brand means to the consumer.
Speaker Change: That doesn't happen and AI will that happen in AI is that the future that we see and I'm just trying to understand traffic.
Steve Huffman: Traffic end up slowing to things like Red Dot com in to your App versus these applications, where you're making money how do you see this evolving.
Steve Huffman: Because I think it obviously is impactful to your brand and what your brand means they consume.
Steve Huffman: Thanks, Rich. A good question. When we do these agreements, and the ones we have so far, are very clear that, Uh, you know, if you're using reddit's data in an answer, like, in your example, you have to link to red, or you have to say ready to use our branding. You have to link to us. And I think that's it's really important to your point. We are starting from the position of what we would like reddit to be.
Speaker Change: Thanks Rich good question look.
Steve Huffman: When we do when we do these agreements and the ones. We have so far are very clear that.
Steve Huffman: If you are using right its data in an answer like in your example, you have to link that you have to say right. After user branding you have to link to us.
Steve Huffman: And I think it's really important to your point.
Steve Huffman: We are starting from a position of we would like read it to be out there I think it's good for the consumer I think it's been good for our platform. We've lived that for a long time in search and I think of the AI products that we know today is really extensions of search that uses our typing into a box what they're interested in and getting answers now.
Steve Huffman: To be out there, I think it's good for the consumer. I think it's been good for our platform. We've lived with that for a long time, and search, and I think of the products that we know today as really extensions of search, right?
Steve Huffman: Users are typing into a box what they're interested in and getting answers now. Will people be able to take Reddit's data, not send any users to us, take credit for themselves, and enrich themselves going forward? The answer is no.
Steve Huffman: Will people be able to take rates data.
Steve Huffman: Not send any users to us to take credit for themselves and enrich themselves going forward. The answer is no.
Steve Huffman: I think our historical way of handling public data no longer works, right? In the past, I think crawling Reddit benefited the whole ecosystem, including users on our platform, as we've said, but increasingly, we are seeing folks who hoard public data, and they use it to enrich themselves. And so we're open-minded about having relationships with companies like this and being included in search and used for training, but it will come with guardrails, with agreements that protect our platform and our users.
Steve Huffman: Our historical way of handling public data no longer works in the past I think crawling rebate benefit at the whole ecosystem, including users on our platform as we as we said, but increasingly we are seeing folks who hoard public data and they use it to enrich themselves.
Steve Huffman: So we're open minded about having relationships.
Steve Huffman: With companies like this and being included in search and used for training, but it will come.
Steve Huffman: With guardrails with agreements that protect our platform and our users.
Steve Huffman: Similarly, you know, in the past, we've read that it's been open for research, and we want to preserve that. And so I think there are uses of Reddit data outside of use, outside of Reddit that are really important. And I do want to be clear, under no circumstances will we ever license behavioral data or data that is not already public. But I think these guardrails are really important.
Steve Huffman: Similarly in the past these red has been opened for research and we want to.
Steve Huffman: Preserve that and so I think there are uses of red at that outside of us outside of write up that are really important.
Steve Huffman: And I just want to be clear under no circumstances will we ever license behavioral data or data that is not already public but I think these guardrails are really important.
Steve Huffman: And so, look, we're open, and we're open for business. But we're not just going to give it away. And I don't think companies that have taken or continue to take our data can expect to continue to do so with no repercussions.
Steve Huffman: Look we're open and we're open for business.
Steve Huffman: But we're not just going to give it away and I don't think companies that have taken or continue to take our data can expect to continue to do so with no repercussion.
Operator: Our next question comes from Mark Shmulek of Bernstein. Please go ahead; your line is open.
Operator: Our next question comes from Mark Shmulek from Bernstein. Please go ahead. Your line is open. Yes, thanks for taking the question. Just a longer-term strategy one, as we kind of get.
Steve Huffman: Our next question comes from Mark Shmulik from Bernstein. Please go ahead. Your line is open.
Mark Shmulek: Yes, hi, thanks for taking the question just a longer term strategy one as we kind of get our first visual of read it as a public company but.
Mark Shmulek: As you think about all the different efforts that you've kind of shared underway around advertiser diversification more ad products.
Mark Shmulek: They use their economy data licensing efforts anyway to think through Dimensionalize in how youre thinking about prioritizing investments across all of those monetization initiatives. Thanks.
Steve Huffman: Yeah, look, I'll start and see if Jen and Drew have anything to add. Our top priority and where most of our resources go is the core of Reddit. And so this is the community and conversation platform, our apps and the website, and then the ads. I think there's a tremendous amount of potential in this area. So, I think we can grow users quite significantly, both in the U.S. and even more so outside the U.S. And we've got a long way to go on that. We're very happy with the progress, but really... It still feels like we're at the beginning of our journey; there's just so much upside.
Mark Shmulek: Yes look I'll start and.
Mark Shmulek: Do you have anything to add.
Steve Huffman: But.
Steve Huffman: Our top priority and where most of our resources go is the core of Red hat and so this is the.
Steve Huffman: The the community and conversation platform, our apps and the website and then the ads business.
Steve Huffman: I think theres, a tremendous amount of potential.
Steve Huffman: In this area. So I think we can grow users.
Steve Huffman: Quite significantly.
Steve Huffman: Both in the U S and even more so outside the U S. And then we've got a long way to go on that and we're very happy with our progress but really.
Steve Huffman: Sure.
Steve Huffman: It still feels like we're at the beginning.
Steve Huffman: Of our journey, there's so much upside and so that's the core.
Steve Huffman: And so that's the core of what we do and how we think about the future. And then, kind of, our next couple of chapters are, yes, the user economy and developer platform and the search opportunity. So, you know, I think of this as like a 70, 20, 10 model, right, 70% on the core of our business and then the rest on these future initiatives. Now, the things for our future initiatives are user economy, developer platform, and search. They're, they're pretty down the fairway for Reddit, right?
Steve Huffman: Of what we do and how we think about the future and then kind of our next couple of chapters, yes, they use our economy and developer platform and the search opportunity. So I think of this as like a 70 2010 model reached 70% on the core of our business.
Steve Huffman: And then the rest on these future initiatives now.
Steve Huffman: The thing so our future initiatives user economy developer platform search.
Steve Huffman: They're pretty down the fairway for rent it or at least I think are very sensible opportunities too.
Steve Huffman: These, I think, are very sensible opportunities to expand the platform and to grow our business. And so it's not too, it's not too far afield. I think all these things kind of fit together in a nice way. And of course, the other big opportunity right, international growth machine translation. I put that in the core. But it has a tremendous amount of upside itself.
Steve Huffman: To expand the platform and to grow our business.
Steve Huffman: And so it's not too it's not too far afield I think all of these things kind of fit together.
Steve Huffman: In a nice way and of course, the other big opportunity or at the international growth machine translation I put that in the in the core.
Steve Huffman:
Steve Huffman: But it has a tremendous amount of upside.
Steve Huffman: L J.
Jen Wong: Jan Drew, what would you ask?
Steve Huffman: Andrew what would you add.
Drew Valero: From here, Steve, I would just add that the margin profile of the business just really encourages investment. We have so many things that I think sort of lead us to want to invest in this business, at least in, you know, we think of our business as a three-legged stool, right, in terms of ad revenues and licensing revenues and then kind of the user economy piece, but at least in the first two.
Jan Drew: But from here, Steve I would just add that the margin profile of that business just really encourages investment.
Drew Valero: We have so many things that I think sort of.
Drew Valero: Lead us to want to invest in this business at least and we think of our business as a three legged stool right in terms of AD revenues in licensing revenues and then kind of the user economy piece, but at least in the first two when you've got a great collection of high margin.
Drew Valero: I mean, you've got a great collection of high-margin immediate payback, no capital, like that's where the ad businesses and that's where we're finding the licensing business here. The investments are really headcount driven. And so those, those are just easy businesses to track; it's easy to see from an accountability perspective, what you're progressing here, but the high gross margins give you a good chance for payback in the immediate term; you can course correct if you need to, and it really does, you know, sort of set yourself up to really look for the right investments and accelerate the revenue growth rate.
Drew Valero: Immediate payback no capital like that's where the AD businesses, and that's where we're finding our licensing business here. The investments are really head count driven and so those are just easy businesses to track its easy to see from an accountability perspective, what you're progressing here, but the high gross margins give you a good chance for the payback. The immediate term you can course, correct if you need to.
Drew Valero: It really does sort of set yourself up to really look for the right investments and accelerate the revenue growth rate. That's how we think about things sort of conceptually now this third leg of the stool as it relates to the developer platform. The user economy, that's coming together now and so we'll see what that what that ends up being right now we're doing kind of more product market fit work, but but overall this is the dynamic of that.
Drew Valero: That's how we think about things sort of conceptually. Now, this third leg of the stool as it relates to the developed platform, the user economy, that's coming together now. And so we'll see what that ends up being. Right now, we're doing kind of more product market fit work. But Overall, this is the dynamic of the first two pieces of business, Steve, I think are really unique and special in the sense that they're short term, high margin, no capital; those are really financially easy places to invest where you can see your payback quickly and course correct if you need to. Our last question today will come from Andrew Boone from JMP Securities. Please go ahead, your line is open. Thanks much for taking my questions to please the first for Jen talked earlier.
Andrew Boone: First two piece of the business, Steve I think we're just really unique and special in the sense that they're short term high margin no capital those are really financially easy places to invest where you can see your payback quickly and course correct. If you need to.
Operator: Our last question today will come from Andrew Boone from JMP Securities. Please go ahead; your line is open.
Drew Valero: Our last question today will come from Andrew Boone from JMP Securities. Please go ahead. Your line is open.
Andrew Boone: Thanks for taking my questions two please the first for Jen.
Andrew Boone: Talked earlier about scaling the business and adding diversity as a key area of focus can you just talk about your progress here, especially given the strength that you saw on Smbs in this last quarter I think there was 50% credit from the skilled business area.
Andrew Boone: And then Steve a bigger picture question video is one of the key trends across in App time spent at launch can you talk about how you think about video and how youre incorporating bidding onto the platform. Thanks, so much.
Operator: I think the first piece is that we are diversifying on multiple fronts. Number one in terms of geography, growing our monthly active advertisers outside of the U.S. Number two, in terms of advertiser size.
Operator: Firstly.
Andrew Boone: We are diversifying on multiple fronts.
Andrew Boone: Number one in terms of geography growing our monthly active advertisers.
Andrew Boone: Got it.
Andrew Boone: Number two in terms of the advertiser side, so the scale channel, which is mid market advertisers and SMB.
Jen Wong: So the scale channel, which is mid-market advertisers and SMBs, we saw strengthen in Q1 as an area of investment for us. What I like about those advertisers is they really start at the mid-funnel. They tend to be more performance-oriented.
Jen Wong: We saw strengthen in Q1, its been an area of investment for us.
Jen Wong: Those advertisers as they really start at the mid funnel and they tend to be more performance oriented I think they're benefiting from some of the performance improvements we've made in the platform and there is thousands more advertisers in that segment that can be on Brent. It. So that is something we continue to work against you are adding.
Jen Wong: And I think they're benefiting from some of the performance improvements we've made in the platform. And there are just thousands more advertisers in that segment that could be on Reddit. So that is something we continue to work against. We are adding and growing a monthly active advertiser count in that segment. That's a focus for us as well. And then verticals.
Jen Wong: And growing our monthly active advertiser count in that segment, that's a focus for us as well.
Jen Wong: And then verticals verticals or something over the last 12 to 18 months.
Jen Wong: Verticals is something that, over the last 12 to 18 months, we've expanded into and continue to have a lot of opportunity in. In our large customer segment, while we touch the top 300 advertisers, a lot of these, and we're only penetrated in a handful. And so there's just a lot more opportunity for sub-brands and sub-businesses, even in that segment, as we grow out the different verticals. And we see segments like finance, pharma, and CPG growing 50% year over year.
Jen Wong: Expanded into.
Jen Wong: And continue to have a lot of opportunity in our large customer segment.
Jen Wong: While the touch top 300 advertisers a lot of these had multiple business lines.
Jen Wong: And.
Jen Wong: We're only penetrated in the Haynesville.
Jen Wong: It's just a lot more opportunity and sub brands and sub business days.
Jen Wong: And even in that segment as we grow out the different verticals and we see segments like finance and pharma and CPG growing 50% in your theory.
Jen Wong: It just is a signal that there's just a lot of opportunity there. So it's a priority for us. We are growing monthly active advertisers. And I think that in the scale segment, in particular, there are just thousands more advertisers you can grow.
Jen Wong: Signal that there's just a lot of opportunity there. So it's a priority for US we are growing monthly active advertisers and I think that scale segment in particular, there's just thousands more appetizers.
Jen Wong: Uh huh.
Steve Huffman: OK, and as for video, yes, as you say, video is obviously a huge, important content type on the internet. I'd say the way we think about it at Reddit, like Reddit's no different, for what it's worth.
Speaker Change: Okay and Thats for video, yes, as you say videos, obviously huge.
Steve Huffman: Important content type on the Internet.
Steve Huffman: Okay.
Steve Huffman: Think about that read it right, it's no different for what it's worth.
Steve Huffman: Video is one of our fastest growing content types. More and more people spend more and more time watching video on Reddit. But I do, from a product point of view, try to think of Reddit as being content type agnostic. That is, whatever type of content that users want to use to communicate or tell stories, they should be able to do so on Reddit. And so, look, we've put a ton of effort into just the quality of our video player in the last year, making going in and out of video from our feed, making the, just the, day to day experience of watching video on Read it better. And we've got some nice updates coming even in the near future towards that end. Um, but images, static images, and text are also hugely important to read it.
Steve Huffman: Video is one of our fastest growing content types more and more people spend more and more time on video on Reddit.
Steve Huffman: But I think from a product point of view try to think of Red at Athene content type agnostic that is.
Steve Huffman: Whatever.
Steve Huffman: Type of content that users want to use the communicated or tell stories.
Steve Huffman: Should be able to do so on right.
Steve Huffman: Look we've put a ton of effort into in the last year or just the quality of our video player Mickey.
Steve Huffman: Thinking going in and out of video from our feed making the just the day to day experience of watching video on rabbit better and we've got some nice updates.
Steve Huffman: Coming even in the near future towards that end.
Steve Huffman: And so a lot of our effort is, how do we bring these things together in harmony? And so I'd say the core Reddit product. It's parts that are still under construction right now, making a mixed media feed work really well where text and links hold their own alongside video, gifts, and ads.
Steve Huffman: But with images static images and taxes are also hugely important to read it and so.
Steve Huffman: A lot of our effort is how do we bring these things together in harmony and so I'd say the core <unk> product.
Steve Huffman: Is.
Steve Huffman: Parts of it are still under construction right now, making a mixed media feed work really well where tax then links and hold their own alongside.
Steve Huffman: Video and gifts and ads, that's been really important to us I think we've made some progress but I also think there's plenty of room for improvement there.
Steve Huffman: That's been really important to us. I think we've made some progress, but I also think there's plenty of room for improvement there. So we're going to, my answer is similar to my answer on search. I think we'll make the video playing and creation experience on Reddit better. When the product is really performing well, then I think we can start talking about monetization. Obviously, there's a huge monetization potential on Reddit. So we'll get there before long, but our focus right now is on making the consumption and creation experience better.
Steve Huffman: So we're going to my answer is similar to my answer on search I think will make the video playing and creation experience on right. It better when a product is really performing well then I think we can start talking about monetization obviously, it's a huge.
Steve Huffman: Monetization potential on rabbit.
Steve Huffman: So we will get there before along but our focus right now is I'm, making.
Steve Huffman: Consumption in creation experience better I think it I think there's plenty of room for improvement.
Steve Huffman: I think there's plenty of room for, Okay, I think we're at the top of the hour here, folks. Thank you so much for your time and attention. It's really exciting to be here, I think for our first public earnings call, but the people who have been with us helping us do this for so long. Again, we're so grateful, and we will talk again soon. Bye.
Speaker Change: Okay I think we're at the top of the hour here folks.
Operator: This concludes Reddit's Q1 2024 earnings call. You may now disconnect.
Steve Huffman: Thank you so much for your time and attention, it's really exciting to be here I think for our first public earnings calls but.
Operator: The folks who've been with us, helping us do that for so long again, we're so grateful.
Operator: And we will talk again soon thanks folks.
Operator: This concludes <unk> Q1, 2024 earnings call you may now disconnect.
Operator: Yeah.
Operator: Okay.
Operator:
Operator: Yeah.
Operator:
Operator: Hum.
Operator: Okay.