Reddit (Minutes): The user mindset for professional search is taking shape

The following is the minutes of the Q4 2024 earnings conference call for $Reddit(RDDT.US). For financial report interpretation, please refer to "Reddit: Is Growth Dependent on the Big Brother's Mood? High Valuation is the 'Sword Overhead'"

1. Important Financial Metrics Overview

1. Strong Revenue: Total revenue in Q4 increased by 71% year-on-year to $428 million, with annual revenue growing by 62% to $1.3 billion. In Q4, advertising revenue grew by 60% year-on-year to $395 million, benefiting from broad advantages in targeting, channels, vertical industries, and regions.

2. Improved Profitability: Adjusted EBITDA in Q4 reached $154 million, with GAAP net income at $71 million; Q4 gross margin reached 92.6%. The adjusted EBITDA margin was 36%, and our net income margin was 17%. This quarter, our incremental adjusted EBITDA margin was 74%.

In Q4, we signed a revised agreement with major hosting service providers, which positively impacted our gross margin this quarter by over 150 basis points, a key factor in pushing our gross margin up to 92.6%. Over time, we continue to see cost optimization opportunities for future gross margins. We believe these new arrangements may help offset future cost increases, which we can see from user growth, machine learning investments, or new initiatives like search.

This quarter, hiring slightly accelerated due to our growth investments in advertising technology, sales, and search. The total number of employees increased by 5% quarter-on-quarter and by 11% year-on-year. By the end of the year, our total number of employees was 2,233, with a net increase of over 200 for the year.

3. Positive Cash Flow: Operating cash flow reached $90 million, with a free cash flow margin of 21%. In 2024, we expect positive cash flow in all four quarters;

4. Reduced Equity Dilution: In Q4, diluted total shares actually decreased quarter-on-quarter to 206.2 million shares.

2. Management Report

1. Performance Milestone

Q4 marked the end of a milestone year for Reddit, our first year as a public company. In 2024, our revenue exceeded $1 billion, DAU surpassed 100 million, and we gained user attention in several new countries worldwide In the past 20 years, our users have created a treasure trove of knowledge about various aspects of human experience, making Reddit one of the largest online repositories of user-generated information. We are using AI to make this content accessible to everyone.

2. User Penetration

Our annual DAUq was 101.7 million, a year-on-year increase of 39%, with international business growing strongly at 46%. Additionally, the number of logged-in users grew by 27%, with quarterly growth rates reaching or exceeding this level for the past two years, maintaining a steady upward trend.

At the end of the fourth quarter, we did experience some fluctuations due to regular algorithm changes in Google search, but so far, search traffic in the first quarter has recovered, and we have regained our growth momentum.

Such algorithm fluctuations are not uncommon, and search recommendations can vary, primarily affecting the reach and activity of non-logged-in users on the platform.

Over the years, our team has gone through many algorithm updates and has adapted excellently to these latest changes. This change is interesting because, at the same time, we saw a corresponding increase in search queries for Reddit, indicating that users have a clear intention to visit Reddit when searching, and this trend continues to rise.

Machine translation now supports 8 languages, with more languages to be launched in the future, allowing international users to engage with their favorite communities and find the information they want. International growth is crucial for Reddit's goal of becoming a global platform.

We typically see two types of users on Reddit, one is the browsing user, and the other is the searching user. Browsing users use Reddit for its core communities and discussions, while searching users come to or ultimately use Reddit to find answers to their questions.

Just a few years ago, adding Reddit to the end of search queries felt novel. Today, it has become a common way for people to seek reliable information, recommendations, and advice. Regardless of where users start their journey, they should be able to seamlessly find the content they need on Reddit.

These search trends inform us about what aspects should be prioritized. To improve the searcher experience, we focus on making platform search a truly top-notch product and the preferred place to find information on Reddit.

According to statistical surveys, over 40% of internet users believe that recommendations on Reddit are the most important factor influencing purchasing decisions, surpassing expert reviews, influencer recommendations, and aggregate star ratings. Reddit discussions are the intersection of interest and intent. They provide information for purchasing decisions and offer brands valuable space to connect with those seeking reliable opinions.

In the United States, we launched a beta version of Reddit Answers, an AI-driven search tool that provides curated summaries of community discussions. Although it is still in the early stages, it has proven to be versatile, allowing people to learn about various information, from local updates on the Los Angeles wildfires to opinions on the best coffee machines Speaking of problem answers, we find that Reddit excels at providing deep answers to subjective questions that are hard to find elsewhere. It currently only offers an English version, but we are excited about how people use it and the early prospects of the product. The human perspective has never been more important, and we have updated our mission statement to reflect this.

Our latest mission is to empower communities to access knowledge. This includes both our work in creating platforms for communities and the work of using Reddit as a source of knowledge. Guided by this mission, we are committed to making Reddit faster, simpler, and more user-friendly. Whether you are a loyal user or a first-time visitor (for example, considering what backpack to buy), it is our responsibility to ensure that any community can thrive and grow on Reddit, making it useful, accessible, and well-managed.

3. Advertising Commercialization

As more brands leverage Reddit's unique capabilities to grow their businesses, our advertisers are diversifying across industries, targets, and regions. In the fourth quarter, we achieved cross-channel growth. We saw strong performance in brand advertising, with revenue at the top of the marketing funnel (brand advertising) growing at the fastest rate in three years. Mid-tier and lower-tier revenue (in-stream performance advertising) accounted for about 60% of total ad revenue and drove more than half of the year-over-year growth this quarter.

Across various channels, our scaled business (including mid-tier and small-to-medium-sized enterprise advertisers) continues to be a growth driver as we activate new advertisers in the U.S. and Europe, the Middle East, and Africa, and adjust our product offerings to better meet the needs of these performance-oriented advertisers.

We saw broad growth across various verticals, with 10 of our top 15 verticals growing over 50% year-over-year, particularly in finance, retail, automotive, pharmaceuticals, gaming, and technology. Regionally, international ad revenue grew 77% year-over-year, marking the fastest growth in over two years, with the UK and the broader EMEA region being particularly notable. We observed that due to foundational user growth, personalized ad loading, deeper interactions, and improvements in monetization of conversation pages, impressions grew double digits year-over-year, while pricing remained roughly flat compared to last year.

Thanks to prior advertising placements and brand safety optimization efforts, the average impressions per user increased year-over-year. The display volume of ads in the comments section contributed about 3% this quarter. We will continue to test this new model, expecting short-term growth in the single-digit mid-range. Revenue during the holiday Cyber Five Week grew over 60% year-over-year, driven by first-time brands and increased spending from existing retail clients.

4. Advertising Technology Enhancements

We will continue to focus on: first, driving the performance of our advertising solutions across various targets; second, improving the usability for our advertisers and the productivity of our sales teams; third, providing Reddit-exclusive solutions and ad formats for our advertisers. We made meaningful progress in each of these areas in the fourth quarter (1) Improve the performance of our advertising solutions

We continue to enhance the contextual relevance of ads on the conversation page, thereby increasing conversions. In the fourth quarter, our click-through rate doubled for the fourth consecutive quarter, and the conversion volume in the second half of the year also doubled compared to the first half.

We also continue to drive the adoption of CAPI (Conversion API), including onboarding improvements and new integration partnerships. In the second half of 2024, the share of conversion revenue covered by CAPI increased twofold compared to the previous year. Using CAPI with Pixel reduces the cost per action for advertisers by 25% compared to using Pixel alone.

(2) Improve advertiser usability and enhance sales team efficiency.

Throughout the year, we advanced in two directions:

a. Our Ads Manager, where we recently improved ad performance reporting, providing advertisers with deeper historical trends, attribution, and keyword segmentation to optimize targeting strategies.

b. Continue to invest in AI as a driver of productivity and performance.

In 2024, we launched the AI Headline Generator and acquired Memorable AI, both of which are driving greater adoption among mid-market and small-to-medium-sized business advertisers, supporting dynamic ad campaign creation and providing more predictive creative performance insights. We recently launched an ad review system powered by LLM, which increased the automated ad review rate by 70%, reducing review time from 30 minutes to 1 minute, allowing advertisers to launch campaigns faster while improving ad quality and safety.

5. Brand Advertising Safety

We also expanded brand safety measurement to IAS and DoubleVerify.

With IAS launching in the fourth quarter, we tested this solution against over 500 million impressions in North America, finding that Reddit's brand safety exceeded 99%. Third, we provide advertisers with unique solutions and formats exclusive to Reddit.

We are developing products that leverage Reddit community intelligence to help businesses grow, gain insights, utilize Reddit Pro trends, and create advertising solutions that harness community signals.

As we announced at CES, we began testing Reddit Pro Trends, a tool that helps businesses discover real-time insights and build an organic presence on Reddit. So far, we have seen thousands of advertisers adopt Reddit Pro, and companies involved have posted more content on the site and engaged more within the community.

6. Data Authorization Development

Reddit is a unique source of real insights and opinions, valuable to our users, advertisers, researchers, and content licensing partners. In the fourth quarter, we partnered with Intercontinental Exchange to develop new data and analytics products for the financial industry. This partnership explores a new vertical market for our content licensing business, connecting anonymous conversations on Reddit with the infrastructure of Intercontinental Exchange, providing financial clients with insights into market trends and sentiment Overall, we are always cautious in selecting partners, and we only choose partners when they complement our business. We are investing in building our products around content, including Reddit Answers and Reddit Pro, which reveal unique insights and advice from Reddit.

7. Outlook and Guidance

Looking ahead, I am pleased with our progress in building a multi-objective advertising platform that enables businesses of various types and sizes to succeed on Reddit.

(1) Short-term Performance Guidance:

Revenue for the first quarter of 2025 is expected to be between $360 million and $370 million, representing a year-over-year growth of 48% to 52%, with a midpoint of 50%;

Adjusted EBITDA is expected to be between $80 million and $90 million, growing approximately 700% to 800%. In the first quarter, we may see SBC costs rise slightly due to stock price fluctuations, as employer taxes will increase.

The fourth quarter is an important proof point for the mid-to-long-term financial goals outlined in our last conference call. In short, we are focused on expanding profitability and translating differentiated revenue growth, high margins, and low capital expenditures into meaningful cash flow.

(2) Mid-to-Long-term Outlook:

As we enter 2025, these financial goals will remain key indicators of our focus. We have already seen the positive impact of revenue growth on our financial performance. The key to continuing to achieve differentiated revenue growth will be innovation and execution.

Our opportunities are greater than ever. Reddit covers all topics and interests, and we believe every business can find value on Reddit. The advertising market looks healthy, and we are monitoring events that may impact the entire industry and the evolving EU privacy landscape. I believe we are in a favorable position in 2025, and I am excited about our development roadmap.

In the coming year, we will focus on three areas to consolidate the progress we have made so far:

(1) Deliver more Reddit-exclusive experiences and communicate value across various objectives. This includes bringing more ML optimization for our brand objectives, as well as Reddit-exclusive formats, to attract more connections and engagement from the community, as well as more product catalog features for shopping. We believe all this work can enhance performance.

(2) Bring more automation to our advertising stack. We are in the early stages of exploring end-to-end automation to achieve performance goals. We believe this can help improve performance and lower the adoption threshold while allowing us to maintain high customer service scores.

(3) Continue to expand and diversify our advertiser base. We have made good progress in diversifying our business, broadening vertical markets, enabling clients to use multiple objectives, and increasing the number of advertisers, all of which enhance the resilience of our business We believe that there is a great opportunity to attract more advertisers to Reddit through potential client development work such as Reddit Pro, partnerships, easier onboarding with features like dynamic creation and ad campaign imports, and retaining these advertisers through excellent performance results. Overall, I am proud of our progress and excited about our continued opportunities to expand market share and drive advertiser outcomes.

3. Analyst Q&A

Q: I noticed that both the quality and quantity of ads have significantly improved since the third quarter. How will you focus on developing new types of ads in the future? How will these ads differentiate Reddit from other platforms?

A: When we consider building ad formats, we always want to leverage Reddit's uniqueness. The uniqueness of Reddit comes to mind in two aspects:

First is community information, a true treasure trove of trusted opinions and advice on Reddit, as well as the engagement and interest on Reddit. So we launched comment section ads in 2024, where user stickiness and activity are very high, and commercialization is still in its early stages.

Second is the product format; we continue to improve our AMA (Ask Me Anything) this quarter. This is very unique for Reddit, allowing for two-way interaction and dialogue between brands and communities.

In addition, we are excited about opportunities in shopping, where we have done more work on creative product aspects and dynamic product optimization. Finally, this is something we have always wanted to do, which is to bring signals and perspectives from the community into advertising to provide more context. I believe all of these measures can enhance brand and conversion rates, and we are excited about the work ahead.

Q: The fourth quarter showed strong profitability, but Reddit still ended 2024 with a significant loss. How confident is Reddit in maintaining or expanding profitability by 2025?

A: Let's first talk about the $484 million loss in 2024, which breaks down as follows: we lost $575 million in the first quarter. But this was due to a large amount of equity incentives related to the IPO ($595 million), which is considered an extraordinary event.

However, starting from the second quarter and over the next three quarters, we achieved profitability cumulatively. Moreover, in terms of performance metrics, I will mainly focus on the cash flow statement and balance sheet.

In terms of trends, I believe we are in a favorable position. As I mentioned, revenue grew by 71% this quarter, and the profit margin is very high. The revenue growth rate is 3 to 5 times that of cost growth. These are all good signs of the business expanding in a very positive way.

Most importantly, we made a profit of $71 million this quarter. Last quarter, we achieved GAAP profitability, with earnings of about $30 million.

Q: What types of user queries have you mainly seen in this more conversational search format (Reddit Answer)? A: We launched Reddit Answer in December, and it's still a test version. Essentially, we are testing how deep Reddit's corpus is and whether Reddit can provide convincing answers to some broad questions.

In terms of test results, the answers to the above questions are all positive.

I believe we have a very good start. Even I am learning on Reddit and am excited about the depth of answers provided by the platform.

For example, a question I can ask and answer is one that I feel hasn't been well reported elsewhere online, so I've asked many authors. What is the best way to start reading this author's work? You will find— it turns out that every author on Reddit has been asked this question a million times, so you will get well-annotated answers.

Another cool question I think is: "Tell me, how do fans interpret the second season of 'Severance' based on their understanding of the first season?" You can even revisit the entire conversation or those conversations that happened on Reddit three years ago. Interestingly, with core products, community, and dialogue products, you actually only interact with content from the last day or the last 24 hours. But over 20 years of conversation, our users have left us an absolutely vast and deep amount of information about everything.

In the future, we will continue to iterate on this product. Although Answers is currently within the Reddit platform app, it is different from the ordinary search within the platform. Over time, this year we actually hope to have only one search function within the app, which is Reddit Search, that will help users browse Reddit, find subreddits, and even answer subjective, difficult, and interesting questions. We will launch the Answers feature in an independent form.

Q: You mentioned the changes in Google's search algorithm in the fourth quarter, and I would love to hear your thoughts on these changes. Do they impact user engagement or revenue?

A: Changes in Google's search algorithm are indeed happening, and they have actually been happening; I guess about twice a year, so this is not the first time nor the last time.

For us, it mainly affects the logged-out users in the U.S. The change in this data is interesting because it did initially show a decline, but shortly thereafter, it rebounded again at the end of this quarter.

I think our content and technical adjustments have made a lot of adaptations. More importantly, we have indeed seen an increase in the number of queries for Reddit in our own search dashboard, which indicates that regardless of what happens on Google's side, internet consumers generally want to ultimately use Reddit.

As we mentioned, the start of the first quarter of 2025 is performing well, both in terms of our search traffic and other traffic.

Q: Regarding search, can the tools on Reddit do more than what Google can do now? How do you view the commercial relevance of these searches? Is there a percentage or qualitative description of how much of this search content can be monetized? A: The reason why Reddit search is interesting is that we are the only search provider focused on Reddit. Other search engines are general-purpose and cover the entire internet. Our relationship with Google has always been very good and deep, and we continue to maintain a symbiotic relationship.

But Reddit is just one of many content providers on the internet. We know that content from Reddit is widely used across the internet. From Answers, we learned that there is even more content on Reddit than we imagined six months ago, such as behavioral data from searchers. By focusing on Reddit, we can do what we do in Reddit Answers, which is that Reddit Answers will AI respond to questions by linking to specific Reddit comments written by real people. So this is a set of highly annotated answers.

In this way, you not only get the answer but can also click on it and actually see the entire conversation. So I think this is really interesting for things like recommendations, travel, advice, etc., where there are no standard answers. There are many answers and a lot of discussion about it.

We see an additional benefit in "Answers," which is that after you read the answers at the bottom, you will see where the answers come from, so there will be a lot of posts and a lot of subreddits that can help users expand more interest communities on Reddit. I have been on Reddit for 20 years, but I am still looking for new communities.

Reddit is actually commercial in many ways, and we expect that about 40% of posts are actually classified as posts that can be truly commercialized, that is, posts about products and services. But in many ways, like joining a hobby or starting to ski, it can also have commercial potential because when you start a hobby, you want to get equipment and things.

So I think Reddit inherently has this capability, and the interesting and exciting part of Reddit Answers lies in this idea of recommendations.

I believe Reddit is the place where people seek purchase advice and make decisions, and what Answers does is present these recommendations in a way that showcases all viewpoints on Reddit. This is a great opportunity; if you consider search, you will find that the intent of search is very strong, and people really want to convert these recommendations into purchasing behavior.

Therefore, the more we can create experiences like Reddit Answers that foster a mindset of recommendations and think about what they want to buy, the greater the opportunity we have to bring in brands or marketers to meet that demand and convert it into action.

If you think about what we are building, we are building shopping, right? Shopping is product-level advertising creativity. We have already laid the groundwork in keyword targeting, which is around context. These two parts allow us to create monetization opportunities at meaningful times, which is an early product test But as we develop the product, we can profit from this intention.

Q: Do you have any thoughts on cost growth this year? I don't know if you can share your views on employee numbers or the direction of costs for the whole year.

A: For the third quarter, fourth quarter, and here in the 1Q25 guidance, growth is expected to be in the range of about 20%. However, we will not provide guidance further out because the visibility and predictability of revenue do not extend beyond one quarter at this time.

But I think overall, we have areas for investment. I believe the hiring pace may be slightly faster than the previous year. Last year, we added over 200 people. We are still hiring talent in engineering, and we are forming a small search team.

But I also want to say that we can quickly push forward some project investments that help accelerate our revenue growth. I do believe we will hire more employees than last year, but we do hope to be flexible in making investments throughout the year.

Q: Have you seen any impact on retention, engagement, or even login conversion rates? In the long term, could Reddit Answers change your view on data licensing? Then, quickly asking about the situation for the next year. How do you view the balance between user growth in the U.S. and ARPU growth? In these two areas, which do you think you have more visibility on?

A: I think it's too early to draw conclusions about the retention rate of Answers right now. It is only available in English and has not been launched on all platforms, or rather, it has barely been launched on all platforms, so it is really just getting started.

Therefore, we are more testing the technology and potential from a product perspective, and everything looks very promising.

I think if we are to explain how this will lead to retention, what excites me is that general users on Reddit typically come to Reddit as seekers.

That's what I mentioned in my opening remarks. They often come with questions to Google and then find that Reddit can answer their questions.

I think helping users to search directly on Reddit, optimizing their queries on Reddit, and ultimately conducting these types of queries directly on Reddit, even integrating search into onboarding processes over time, I think these are all very interesting things worth trying as the platform's search improves.

So I think it opens up a variety of doors, and almost everything we do on the product side is aimed at improving retention.

But I think the biggest retention challenge Reddit faces is that when users show up on Reddit, we need to help them quickly find the communities that are best suited for them, which is also a search matching issue.

Therefore, over time, search will achieve this, and that is key.

In terms of data licensing, I think what you see here is that we are still in the market. We are still engaging in various deals. I remember just yesterday, we announced an agreement with ICE, and we are also negotiating with some large companies But we are also looking for opportunities internally to monetize the value of our data (corpus) in other ways, which is the process of developing products like Reddit Answers. Of course, we can help others build good products and good models, but we can build the best products based on our own data, which should also be our focus.

In terms of user growth and ARPU growth, I believe we still have a lot of opportunities regarding users. I think we have not fully penetrated the U.S. market, even though the U.S. is currently our most mature market, and we have made significant progress in many countries around the world.

Communities are ubiquitous, so we believe that creating a truly cosmic-level product has tremendous potential—everyone belongs to a community, and everyone wants that sense of belonging. Everyone has questions. Everyone is on a journey through life, and all of these things are on Reddit. The way we achieve these goals is through the performance and quality we have discussed, and some of the new products (like search) actually involve both aspects. Of course, global growth is also driven by machine translation.

Regarding ARPU, in the fourth quarter, there was good growth in both the U.S. and other parts of the world, and there is still a lot of room for growth. We know this is an opportunity that grows over time. But our thought is that we are trying to increase revenue by continuing to expand our verticals, improving performance, and simplifying our advertising platform so that we have more advertisers, which in turn brings more demand to our platform. As we continue to increase users, our share will also increase.

You see, the growth of ARPU in the U.S. and other parts of the world in the fourth quarter is still in its early stages. The ARPU in other parts of the world is just a small fraction of that in the U.S., so there is a significant growth opportunity there. But likewise, we believe this indeed increases our revenue while also increasing our share and users. User growth is a very good value driver for us, along with some brand safety and personalized ad loading work. Besides the ad format work we added in comments, there are many other efforts.

Q: Steve, I want to talk to you about the initiatives you are taking to continue converting unregistered users into registered users. Perhaps you can share with us the biggest progress you made in 2024. Looking ahead to 2025, what areas are you focusing on internally to continue converting unregistered users into registered users?

Then, Jen, I know there will be many advertising plans in 2025. Can you help us understand that? When you look at your product line, which areas are the easiest to improve, and which areas will take longer to reflect in the profit and loss statement?

A: Taking Reddit U.S. as an example. If there is a community that fits everyone, and that community is us, then why isn't everyone using Reddit? Well, I think there are two reasons. Either they haven't heard of Reddit, which is becoming less likely, or they have tried Reddit but it didn't work for them, and those are the user groups we are focusing on So these users either come from external searches, like Google, or they directly enter the gates of Reddit, right? They go to Reddit.com or open the app. Those who enter the Reddit platform directly without logging in are the ones we are most actively focused on because at that moment they are telling us, "I am willing to join this platform."

Therefore, the most effective work we have done is to make the "login process easier" first. Logging in used to be very difficult, and we lost 80% of registered users due to username selection. Now it’s much smoother; users can log in and register directly using their email, phone number, Google, or Apple.

In addition, the new user onboarding process has also improved significantly, including recommending personalized interest communities. The machine learning in our homepage information feed, our ability to understand your interests and expand them or show you more relevant subreddits has gotten better. So now this has become the primary driver for users to join new communities on Reddit and also the primary driver for user retention.

Our current work and future goal is whether we can make Reddit excel in providing answers for them. This is what Reddit Answers is about, a dedicated login page for searchers that makes Reddit search itself very great, so users can understand that they can ask these specific questions on Reddit. The idea of building products for searchers (not just scrollers) is very important to us, so we have expanded our mission to include that.

Q: I want to ask, what changes did Google make to its algorithm in the fourth quarter? Many opinions suggest that Google favors Reddit, and algorithm adjustments will prioritize Reddit? So what exactly has changed? How can you ensure that future changes won't be more problematic than this one? I think you mentioned that Google's changes mainly target inactive users. I think this means it has a very small or even no impact on revenue, but it would be great if you could clarify that. Then, considering your comments about the recovery of DAU growth in the first quarter, when we think about this, can you tell us about the situation in the fourth quarter after adjusting for Google's algorithm changes so that we can understand the potential growth and think about the impact on the first quarter?

A: We can't provide a suitable answer regarding how Google's search algorithm has specifically adjusted. But we are not worried because it has no impact on revenue. For now, we can only say that we are very satisfied with the progress of user return.

In fact, like other website platforms, we have always been affected by Google's fluctuations, and you can see their blog articles about search adjustments for specifics. We have a good relationship with them. We collaborate in various ways, including how to continue directing traffic to our platform better.

Q: Can you talk about the progress you have made in increasing the number of advertisers and the measures you are taking to increase the number of advertisers in 2025 and 2026, including possibly focusing on self-service? Then the second question is, I want to return to the search aspect, perhaps exploring this issue from different angles, that is, the intentions and signals it may drive across the entire platform. Can you talk about the power of search, even the power of increasing engagement on the Answers platform, and its ability to drive conversion rates and intention improvements across the entire platform?

A: We saw an increase in the number of monthly active advertisers in the fourth quarter. The diversification of advertising categories continues, and the platform can accommodate more advertisers, and we are satisfied with the progress in this area.

Unlocking these features is driven by multiple factors:

First, we focus on the ease of use in onboarding and activation, making it simpler to activate features like the Gen-AI headline generator, thereby eliminating the friction of launching and running creatives on the platform, achieving automation, and optimizing for maximum clicks or minimum cost per click. These semi-automated features enable small advertisers to enter the platform.

Just a reminder, our strategy is currently not focused on automated services. Our business scale in the mid-market and small to medium enterprises is indeed growing well, as we provide them with some very easy treatments to help them through the entire process. In terms of the average revenue of the advertisers we see, it is worthwhile and helps them retain customers and increase engagement. We focus on developing what we call filtered tier-one and tier-two small and medium enterprises, which are growing very well. The platform can accommodate more businesses. We will continue this growth trend into 2025.

We will work at the top of the funnel (brand advertising) to attract more advertisers.

Therefore, we have been doing this, such as the acquisition team we established in the mid-market last year. This year we will continue to do so, while also conducting paid marketing at the top of the funnel, working on SEO around our business website, and building relationships with partners who work with small businesses, so that we can bring leads into our platform.

Developing Reddit Pro, which is the landing point for businesses to showcase themselves on Reddit, understand the platform, and then become advertisers.

Q: When you consider strategic priorities or the positioning of the business internationally and domestically, how should we think about user channel optimization or monetization paths and trends, and how to build higher density around advertising programs globally, rather than just comparing businesses regionally as you have proven domestically?

A: Reddit's ratio of U.S. to non-U.S. users is roughly 50%, but 80% to 95% of global users come from outside the U.S.

Everything we are discussing today about growth is actually related to the quality and performance of search. These not only help us achieve growth in the U.S., the most mature market, but also help us achieve growth in markets outside the U.S., right? Product quality is always key.

In addition, we have several initiatives that I think are very promising. For example, we have discussed machine translation multiple times The first country we deployed this service in is France. Even among the market countries we are focusing on, France's growth rate is 30% to 40% faster than that of the United States. This is because we first have machine translation. We are currently promoting it in six languages and will expand to more languages throughout the year, and costs have already decreased, so we will continue to expand this business.

Then there is our community work. We send people to various countries to identify thematic communities, such as sports, CDs, and important cultural fields, to ensure the existence of communities, recruit hosts, train hosts, organize gatherings, and all high-contact diplomatic work. We are also conducting such work in many countries around the world. So the potential is there because community content can be universal, and our work is making an impact.

We focus on users, and we do have markets like the UK, where these markets are becoming more mature for us. Similar to the situation in the United States, Reddit has become one of the popular search terms that Google intends to input in the UK.

Everything we build in the advertising stack and advertising platform is global, serving global advertisers. Therefore, they can benefit from all the performance enhancements and ease of use we build into the platform.

We are investing in marketing in the EMEA region to attract more advertisers, and we have also invested in expanding our market team, focusing on attracting more advertisers and bringing more customers onto the platform. As you saw in the fourth quarter, the growth rate in the EMEA region is a result of some of the investments we have made.

Q: Many companies are turning to use DeepSeek and its large language models, and you also see Facebook hitting all-time highs. Both are open-source.

So I want to ask you, your two deals are both with proprietary large language models (Google and OpenAI). My question is, are you using these open models to help create content for customers? If open large language models win the battle of large language models, would that threaten your revenue source from content licensing?

A: We like open-source AI models just like every company. I think there are a lot of opportunities here. You see, we use a business model, we use an open-source model. We do it ourselves.

So I think what we are seeing now is exactly what we said two years ago. The use of this technology will become commoditized. Open-source will keep pace with commercial products, and eventually, it will be available for everyone.

I think this is a good thing for the industry, and of course, it is a good thing for us because basically every aspect of our business can benefit from this technology, including auditing, security, copy generation, internal tools, and search.

The second part of your question is, what impact does this have on our licensing opportunities? The short answer is, none. You see, every existing foundational model, including DeepSeek, and the models generated from Reddit data by DeepSeek. Without Reddit data, these models would not exist But we are essentially a channel for continuously acquiring the latest information. Imagine if a search engine stopped indexing in 2021; over time, its usefulness would diminish. The same applies at a fundamental level. If it stops acquiring new information, its relevance will decrease over time.

Therefore, you need to consistently provide the latest information. Reddit offers insights into various aspects of human experience. Right? AI cannot tell you what the experience is like by trying out a new hairdryer or listening to headphones, but users on Reddit can.

So this type of information is very valuable; AI cannot tell you what it feels like to break up and what you should do, but that information can come from Reddit. So I think there is no change. In fact, there is no change from our current situation, and we are very excited about the open-source model.

The risk disclosure and statement of this article: Dolphin Research Disclaimer and General Disclosure