Reddit (Minutes): Core search weekly users have reached 70 million

The following are the Minutes of the FY25Q2 earnings call for$Reddit(RDDT.US) compiled by Dolphin Research. For earnings interpretation, please refer to《Clinging to Google's Coattails, Reddit Speeds on the Commercialization Path》

I. Review of Core Financial Information

1. 3Q25 Guidance: Expected revenue of $535 - $545 million (YoY +54% - 56%, midpoint 55%); Adjusted EBITDA of $185 - $195 million (YoY +100% - 110%, midpoint margin 35%).

2. Cash Flow: Second quarter free cash flow of $111 million, cumulative $237 million for the first two quarters, free cash flow margin 22%.

3. Equity Related: Annual equity awards increased shares by 575,000 (to 206.6 million shares), total dilution year-to-date <0.5%.

4. Investment: Total employee count increased 17% YoY (QoQ +100 employees, 70% focused on consumer sector); continued investment in sales, search/ML, with new marketing tests this quarter (driving global brand and performance outcomes); investment covers US and international markets, accounting for percentage points of Q2 revenue, adjustments to be made in the second half based on market. Incremental adjusted EBITDA margin 58% (exceeding long-term target of 50%).

5. Capital Expenditure: Q2 was $500,000, year-to-date < $2 million; cash investment exceeded $2 billion for the first time (reaching $2.06 billion, QoQ +$109 million).

II. Detailed Content of the Earnings Call

2.1 Key Information from Executive Statements

1. Overall Quarterly Performance:

Revenue grew 78% YoY to $500 million (fastest growth since 2022), daily active users reached 110 million (YoY growth 21%), growth in both US and international markets, marking the most profitable quarter ever. Advertisers' recognition of Reddit increased, and the new AI-driven product "Reddit Insights" received high praise from clients.

2. Core Opportunities and Value Positioning:

a. In an era dominated by algorithms and automation, users have a strong demand for real human interaction, with 80% of users believing that some questions require human answers rather than AI-generated content.

b. Reddit is the most cited domain for AI models, and its human interaction content is crucial for training large language models (LLMs) and AI search engines, serving as a differentiated data source.

c. Reddit stands out for its authenticity and honesty, becoming a core platform for users seeking product/service recommendations and diverse opinions, helping brands establish trustworthy connections.

3. Strategic Adjustments:

Lowered the priority of "user economy" related projects, focusing resources on three major areas — improving core products, building a preferred search engine, and international expansion. Supported product investment through paid marketing (such as French brand campaigns), testing full-funnel consumer marketing, with early initiatives advancing rapidly.

4. Specific Advancement Measures

1. Core Product Optimization: Enhance the intuitiveness of the new user onboarding process, reduce login and participation barriers; use AI to optimize personalized recommendations and community discovery; advance human identity verification to maintain authenticity.
2. Search Function Upgrade: Reddit has the potential to become a "search destination", with core search weekly users reaching 70 million, Q&A feature (Reddit Answers) users increasing from 1 million to 6 million; plans to globally promote this feature, deepen integration into core search, and enhance awareness through marketing.
3. International Expansion: Machine translation supports 23 languages, covering Asia, Europe, and Latin America markets; promote localized ecosystems through translation, localized content, and moderator recruitment, aiming for self-sustaining development.
4. Advertising Business Strategy and Progress
5. Strategic Direction: Enable various enterprises to succeed on Reddit, focusing on enhancing advertising performance, improving advertiser and sales team efficiency, and providing unique advertising solutions.
6. Investment in advertising models and formats to enhance performance, dynamic product ads (DPA) fully launched, measurement tools strengthen lower funnel strategies; new Smartly integration aids ad placement, will launch Reddit Community Intelligence; enhance Reddit Pro, using AI tools to help enterprises establish community presence.

2.2 Q&A Session

Q: What are the trends of US users in Q2 and entering Q3, what is the user group situation and improvement drivers?

A: In the second quarter, the growth rate was slow at the start in April. However, as the quarter progressed, due to targeted optimizations on the product side, marketing actions, and user acquisition strategies, the situation gradually improved. Although Fas traffic fluctuated greatly, Q2 overall posed some resistance to the business, but the end of Q2 user data (exceeding the quarterly average of 110 million) showed positive signals. In July, daily active users (DAU) in both the US and international markets achieved growth, and further observation of the remaining period of this quarter is needed. Currently, we are focusing on strategic planning and product roadmap, emphasizing the implementation of user growth.

Q: What innovations in the advertising business in the second half can enhance advertisers' ROAS and expand advertising procurement scale?

A: 1. Dynamic Product Ads (DPA): As a shopping ad tool launched in Q2, although still in the early stages of promotion, advertisers have already achieved good returns on ad spend through it, and plans are to more broadly market it to attract more advertisers to adopt.

1) Platform Automation Upgrade: Automated bidding feature has been launched, while deepening automation across the platform (such as integrating Memorable AI in the creative pre-stage), which not only makes it easier for advertisers to join and use but also helps improve ad placement performance.

3) Community Intelligence Products: The community intelligence (including Reddit Insights and community add-ons as initial products) released at Cannes has just been launched, with positive market feedback, and is expected to be more widely applied and generate greater value in the future.

Q: Given Reddit's growing importance as a domain cited by LLM models, how does this translate into user trends? Considering partners benefit from Reddit content, what impact does this have on the thinking about data licensing opportunities?

A: Through data licensing cooperation, both we and our partners recognize Reddit's critical importance to AI, large language models (LLM), and next-generation search. The situation has changed significantly over the past few years, with various variables changing since the initial cooperation.

Our corpus is larger, unique, and crucial, placing Reddit in a favorable strategic position. On the product side, after building Reddit Answers, we found the corpus to be richer and broader than expected, creating huge opportunities for users to provide diverse perspectives on subjective questions (these types of questions are an important demand for users on the internet). We are currently exploring the extent and use of users' reliance on data, and if past trends continue, it will spawn many opportunities.

Q：Ad business grew by 84%, and the number of active advertisers increased by over 50%. Over the past year or so, how has our partnership with advertisers evolved?

A：The base of active advertisers has grown healthily, with most of the increase coming from stable, well-experiencing existing advertisers. Specifically, we have taken several initiatives:

1. for major clients with global cooperation needs, we established a dedicated Global Accounts team to serve them in a truly international manner—this is a natural development as our collaborations deepen and broaden, and it’s very promising;

2.in response to market demand and advertiser requests, we integrated with the third-party ecosystems they commonly use (for example, partnering with Smartly), reducing barriers to ad deployment, unlocking further demand, and making it easier for them to run campaigns and marketing activities on Reddit;

3.an increasing number of advertisers are working with us across different stages of the marketing funnel and around diverse objectives. This more diversified collaboration approach fully leverages Reddit’s value, which is very gratifying.

Q：As the most-cited Internet domain by LLMs, how does Reddit’s prominence translate into user trends? Given that our partners benefit from Reddit content, how does this influence our thinking on data-licensing opportunities?

A：Through data-licensing collaborations, both we and our partners recognize that Reddit is critical to AI, large language models (LLMs), and the next generation of search. The landscape has shifted significantly over the past few years, and many variables have changed since our initial partnerships.

Our corpus is now larger, more unique, and more essential, positioning Reddit strategically. On the product side, after building Reddit Answers, we discovered that the dataset is richer and broader than expected, creating huge opportunities to offer users multiple perspectives on subjective questions—an important user need online. We are still exploring the degree and manner in which users rely on this data; if past trends continue, many opportunities will emerge.

Q: What are the key experiences in marketing strategy, what are the characteristics of new users, and are there differences in engagement and retention rates?

A: Currently in the early stages, building capabilities and conducting initial tests, sharing two thoughts:

- Outside the US, enhancing brand awareness and user consideration is an opportunity that requires investment. Due to differences in the foundation of the US English market and other regions, we want to lay the foundation in the latter. For example, the French brand campaign shows improved product content and immersive experience with machine translation, receiving positive feedback, although there is work to be done, progress is promising.

- Creating a unique Reddit search experience, many people search "Reddit," but directly using its built-in search is a new behavior. We are advancing the integration of search functions into various products, and will market it later, cultivating new search habits among users, which is an opportunity, although in the early stages, it can reflect the marketing direction.

Q: Regarding user engagement and usage duration, competitors have enhanced duration through personalization and machine learning models, what are your observations in this regard?

A: User engagement and duration performance are stable, the core logic is "relevance → retention → growth." The more users use it, the more personalized and tailored the platform becomes, and engagement deepens over time, we need to promote this virtuous cycle.

This year's goal is to make the product "instantly personalized," simplifying new user guidance (from cumbersome Q&A to search box), so that new users can immediately receive interest-related recommendations (such as Reddit Answers guides, dynamic sources related to channels). Currently, new users often encounter "irrelevant recommendations" issues, solving it is an opportunity, we are advancing these optimizations, expecting significant improvements.

Q: Sales and marketing expenses increased significantly from Q1 to Q2 (approximately from $90 million to $120 million), driven by lead generation marketing activities? Are there other factors?

A: In terms of cost growth, it has increased by double-digit percentages over the past few quarters, reaching 30%+ in Q2. The acceleration in growth is due to three factors: first, revenue-driven variable costs (the biggest driver); second, hiring over 100 people this quarter, pushing up costs; third, sales and marketing investment, accounting for several percentage points of revenue, based on a $500 million revenue base in Q2, with low double-digit (million-level) investment.

In future planning, we will comprehensively review the marketing funnel and market, Q3 guidance adj. EBITDA $185 - $195 million, cost structure corresponding to 30%+ growth. We will adjust costs based on marketing effectiveness, expecting cost growth in the next quarter to still likely be in the 30%+ range, and then decide whether to adjust based on business progress, this is the direction of Q3 guidance.

Q: The shareholder letter mentions 50 million scrollers and 60 million seekers per week, how do you view the future proportion change between the two, is it maintaining a similar ratio or focusing on a certain type of user?

A: Regarding the proportion of scrollers and seekers, long-term we do not tend to favor a specific bias, a single user often exhibits both behaviors in a day, most core users inherently possess both (whether directly searching or jumping through third-party, users will encounter Reddit). To efficiently serve both scenarios, the expected proportion remains balanced, external search will continue to attract new users, and both are crucial to Reddit.

Q: Weekly 70 million search volume, combined with Reddit Answers, is search behavior more used by early users, or has new users expanded search usage due to this product?

A: Currently, among the 70 million weekly search users, Reddit Answers is a derivative feature of core search, located in the navigation area. In the future, it will be integrated into core search, no longer emphasizing independent product attributes, but as a capability layer integrated into the entire product (besides the search bar, links can be integrated in comment pages, post detail pages, etc.), allowing users to understand content without frantically clicking posts. Overall, the proportion will remain balanced, users will maintain both behaviors, and the feature will permeate all applications rather than exist in isolation.

Q: In the international market test of Reddit Lite, what preliminary findings have been made regarding user engagement? How do you view the monetization opportunities of its user interface? What are the plans for broader promotion of this product?

A: Reddit Lite is a reconstruction of the core application experience for international testing, currently optimizing the visual based on experience, making the application simpler and easier to use, the focus is to quickly promote UI improvements to the mass market, including the US. The test simplified post presentation and interaction, removing content that interferes with new users, verifying the effectiveness of the measures, now integrating into the core application, quickly pushing it to users.

Q: Considering the value of Reddit data in the field of large language models (LLM) and generative AI, is there a possibility that Reddit data is only licensed to one LLM, restricting access to other LLMs, or even joining traffic guarantee clauses to ensure the cooperating LLM does not affect Reddit's traffic in the long term? How do you view the dynamic changes in this data licensing model?

A: It's too early to say what the future cooperation form will be, cooperation has revealed Reddit's corpus is increasingly important to top internet players, placing us in a favorable strategic position. Although the value of data is recognized, the extent and use of people's reliance on it still need exploration, clarifying future cooperation structure requires time. Currently, we need to continue learning in cooperation, building quality products based on the corpus, and observing development in the coming years.

Q: What are your thoughts on Google's testing of expanding forum and discussion result displays, does this have a positive impact on Reddit?

A: Google is testing, and product iterations are fast, impacting every participant in the ecosystem. Reddit's corpus is important to products and users, "Reddit" is a popular search term on Google, as users often want to visit Reddit when searching Google. In line with user demand, more dynamics are expected in the product, as long as the corpus grows, users will continue to search "Reddit," which is beneficial to us in the long term.

Q: If AI mode becomes the default, how do you think this will affect or drive Reddit's traffic?

A: The impact of AI mode on traffic depends on users wanting Reddit's perspectives. Regardless of why users come to Reddit, we need to help them find answers, converting them into core users who both explore and browse. Although there are many dynamic changes, it creates net opportunities.

Q: Regarding achieving self-sustaining international markets, what is the current progress, and what needs to be done to tap into international opportunities?

A: In terms of international markets, the product must provide value to users upon first use (such as search, association, personalization), internationalization requires building a content library, relying on machine translation of English corpus in the short to medium term, progress is good. But we want to see local users build local communities, so we are expanding moderators, simplifying management with AI, developing recruitment tools to help communities start quickly. Personalization not only pushes content but is also a main way to discover new communities, its higher efficiency can help new communities develop. Product quality, community/moderator construction, community discovery, and other work collaborate to promote internationalization.

Q: The advertiser base has grown 50% for two consecutive quarters, how does the product roadmap ensure the breadth of ad auctions continues to expand?

A: The question revolves around continuously expanding the active advertiser base and the actions required by the roadmap. Reddit can accommodate a large number of advertisers, large brands are directly connected by teams, small markets and small business advertisers need simple automated processes.

We are developing semi-automated functions in key modules (including performance modules), not yet achieving end-to-end automation, advancing integration one by one, end-to-end automation is important for small advertisers.

Once capable, efficient customer acquisition mechanisms and marketing are needed to bring advertisers to the platform, currently being done and can be promoted on a larger scale. For example, optimizing creative materials with generative AI and partner companies, building integration into the advertising platform, these are key to achieving a large-scale active advertiser base.

Q: Compared to other social platforms, at what stage is Reddit's return on ad spend (ROAS), is the incremental ad budget coming from new budgets from advertisers or transferred from other platforms? The rise in new commercial registrations, is there a conversion to ad clients, and how effective is this channel in the long term?

A: When clients share ROAS, we benchmark it, continuously improving and enhancing competitiveness, the team is also very focused. Advertisers increase placements due to seeing results, growth stems from platform performance and competitiveness enhancement.

Regarding budget sources, the market is integrating, good performance attracts budget transfers, and there are new additions, both exist. Reddit Pro is still early, but more and more enterprises are consulting for promotion, we are building its connection with the ad manager. For example, there are ad products, can first post naturally and then promote, Reddit Pro data can provide promotion tips, although the connection building is still early, there is conversion opportunity.

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