Very pleased to have Steve Huffman here from Reddit, Chief Executive Officer and Founder. We're going to go through a lot of big picture questions that we get all the time, some concurrent events, and then some business model questions. We also have questions from a Reddit audience. I think it should be a good discussion. Thank you so much for coming.
Yeah. Thanks, Justin. Really glad to be here.
Great. Why don't we just start off with you? What do you spend most of your time doing, and what are some of your priorities right now?
The big goal for Reddit. Well, if we start with our mission, right? Our mission is communities for everybody. To make that more concrete, we really think about how do we 10x our user base, how do we 20x our revenue? How do we get to a billion global DAU? On the path to that, I think our most nearest term milestone is how do we get to 100 million U.S. DAU? Broadly, we're thinking about people and product. We've been going through, I think, a big evolution over the last year, making really some foundational changes to our teams. At the end of the day, great products are made by great people, and so it's been kind of just a constant evolution of Reddit, of just upgrading our team.
Whether we're evolving ourselves or bringing in outside folks, but just to have the absolute best team possible so we can have the absolute best execution possible, so we can have the absolute best product possible. On user growth, look, our core product works amazingly well for our core users. Reddit can be a product that's challenging to get, and so our work there, I don't know if it's sexy, I find it very interesting, but really just improving the quality of the product. The ease of use, the performance, just increasing the likelihood that a new user is going to find their home on Reddit. That is how I think we drive kind of durable compounding growth.
Yeah.
For us, revenue's grown 70% for the last couple of years, been very consistent, and I think we can very reliably turn users into revenue in a healthy way. All roads point to us just growing users within our core product, because the core product and the core business is working very well.
Great. Let's dive into users a little bit. It's a big question we get, and you have a huge broad user reach in the U.S., but how are you thinking about turning those weeklies into dailies, and anything new? I know you've been working on it for 18 months now. What are your big initiatives right now to drive frequency?
Yeah. Weeklies and dailies, themselves, are both important measures of Reddit. If we look at within our U.S. traffic, we have about 200 million U.S. weeklies and about 50 million U.S. dailies. When I think about that path to 100 million U.S. dailies, so roughly double from where we are today, I look at the potential of the 200 million weeklies we already have. If we think about the kind of three aspects of growth on Reddit, so reach, just like the total scale. Already in the U.S. we're at 200 million weeklies. How do we grow that to capture more of those as daily users? Frequency is the one that we're really thinking about right now. How often do users come to Reddit every week?
If you were to look at a histogram of how many days active a user is on Reddit, the two biggest bars would be seven days, as in they come every single day, seven days a week, or one day. Quite simply, our job is to convert those ones into sevens. In between, there's actually not much, which just kind of tells the same story again as once somebody really gets Reddit, they get it, and they're really hooked. That journey can be challenging, so really increasing the reach there. Then depth, so this is how much time people are spending on Reddit. I think we're at actually a very healthy spot here. A U.S. logged-in user spends on average 30 minutes a day on Reddit, and the older their account is, the more time they spend on Reddit.
A seasoned account spends more like 50 minutes a day on Reddit. Again, this kind of tells the same story over and over is once users get it, they actually go deeper and deeper over time. One of the ways Reddit is different than social media is our users don't age out of Reddit. They age out of social media, and then they age into Reddit. Reddit communities cover everything you're doing or thinking about from something mundane, like what should I watch tonight, right? The never-ending problem of life. To relationship challenges or kid challenges or medical maladies, whatever it is, Reddit is there with you on your life's journey. It's really, for us, that frequency question, excuse me, of taking the potential energy we see in our weeklies and converting those into dailies.
Got it. What's the biggest initiative right now to do that?
Oh, my gosh. Okay. I actually have an answer.
Yeah.
It's going to be a combination of a lot of incremental improvements to onboarding and performance and ease of use and navigation in the app. We're chipping away at all of these things. The biggest one will be machine learning in the feed.
Okay.
Reddit's going through this transition. The early version of the Reddit product, or for the first couple of generations of Reddit, was the front page of the internet. It's one front page of content for everybody. That worked when our user base was homogeneous. Now our user base is diverse, our content base is diverse, both great things. One front page doesn't work for everybody. We're been on this transition from one front page to more personalized experiences. That is the short-term, medium-term, long-term. That'll be the one that's carrying the most load. When we talk about, in my first answer, the people and the product, the people we are bringing in are the machine learning experts who have worked on feeds like Reddit at scale, at greater scale than Reddit. The processes so that we can ship and iterate new models much more quickly.
Yep.
I think that'll carry the most load. Like I said, it's also a game of many inches over every part of the product. I think of Reddit as this machine. We're always looking at what are the parts of the machine that have the most friction. If you talked to me a couple quarters ago, I would say onboard. We've actually dramatically reduced the friction in onboarding. Now the success rate of users through the onboarding journey is like 80%, 90%. That's great. Now the next step is we're putting them in this feed. Now we can see that feed really needs to level up as well to help users through that whole journey. I'm guessing if we talk in six months or a year, I'll be talking about content creation or community creation, the next parts of the machine as we look to the future.
Got it. I have one from the community. I want to read this so I get it right. Steve, you have a very passionate user base in your Reddit communities, and many of them are also shareholders. They think that your business is doing really well, but sometimes the stock price doesn't reflect that. Do you have any thoughts on that?
I do. I'm mic'd, so I can't share my thoughts.
Yep.
Okay, look. I'm so grateful for the shareholders in our user base. It's a literal dream come true.
Yep.
One of the reasons we went public was so that our users could be shareholders. That they feel this deep sense of ownership over Reddit. All of our communities, all the content, everything interesting about Reddit is created by our users. I wanted them to have opportunity to be real owners. There's a community on Reddit called RedditStock. That's where the shareholders hang out. I see every post in there.
Yeah.
The good, bad, and the ugly. I read every word. To answer the question, you're right, the business is doing well. I think we've had very consistent growth. Like I said, 70% revenue growth over the last two years. Over 90% gross margin. Profitable on a GAAP basis. I think doing really well. I think we're really proud of the business returns. Look, I think if you look over shareholder returns over the long term, I mean, since we IPOed two years ago, we're up 5x. We do take a long-term view of our business, and shareholder returns, but we also get we've been higher than we are right now. I think there's many reasons for this. I think the biggest one probably is just uncertainty with AI.
We catch it, I think we catch it from a couple dimensions. One is just macro uncertainty, just what's happening in the economy, what's happening in the world. There's a lot of that. Of course, I think we and many others sit downstream of that. Then of uncertainty specific to people in our space. Do you get disrupted by AI? Displaced by AI? If I work through these things, we've got a great business. Reddit is, I think from a business performance point of view, one of one company. If you look at the revenue growth, the gross margin, the EBITDA margins, cash flow, we're very proud of our work there. Then when you think about the AI uncertainty, I'll just point to a couple of things, which is humans always want to talk to other people.
In fact, I think in the AI world, there's an increasing value placed on authentic human connection and conversation, and that's ultimately what the Reddit product is.
Then second on top of that, there are, I think, so many opportunities for, and we're seeing it now, that the paradox of AI, which is AI as we know it doesn't exist without Reddit, right? Reddit is used pre-training, post-training, grounding search. Reddit is an essential player in the modern version of the internet. I think what's most important to us is continue to execute our strategy, continue to grow users, and I think we'll see this play out. Look, I also would say that when our stock, when we think it's a good value, we'll be a buyer as well. We've bought one million shares this quarter already, I think also sometimes opportunities are presented in that regard as well.
Got it. I would say the internet has not been a picnic this year either so hardware space is doing quite well. Maybe it's drawing some dollars. Let's go to current events. I know we've got a lot of questions on this, so what do you think about Google's product announcements at I/O? On that topic, how do you think about your upcoming data license contract renewals?
Okay, I was touching on this a little bit in the last answer. Look, Reddit is an essential part of the internet ecosystem. The word Reddit is one of the most searched terms on Google. It's been in the top 10 most searched words on Google the last couple of years. Reddit has the best content on the internet. Google is the best search engine on the internet. I think combined, it creates an incredible amount of value for the internet consumer. The internet is better when I think that connection works very well.
Now, the space is under a lot of evolution. We recognize, I think, the importance that we play in this ecosystem. There is no LLM on Earth that wasn't significantly trained on Reddit's data, including Google and OpenAI, with whom we have big partnerships, and including other folks with whom we have big lawsuits. We've seen, I think, the appreciation for this value and Reddit's position in it evolve over the last couple of years. As I mentioned, Reddit is an essential part of pre-training, of post-training, of grounding, of search. Really of every part of the stack. As we look forward, I think it's really important that this and relationships like this continue to exist and thrive, and we continue to evolve together. I think it's also we'll make sure that Reddit gets full value for what we provide to the ecosystem.
Got it. Any traffic flows or anything from I/O that would change anything in your opinion, or was it pretty status quo?
I think even without AI, search is search. Even despite our close relationship, we don't always know where that's going to go. I think every quarter there are puts and takes. I think the overall story here and the evolution of search on the internet is, it's hard to say for sure where this goes. What is important for Reddit, and I think this is unique to Reddit, which is we have completely unique and differentiated content.
People don't want summaries on, I was going to say important questions, but sometimes it's like, what I call them questions with no answers. Let me give you an unimportant question with no answer. What should I watch tonight? Right? People want to hear the conversation. What car should I buy? Where should I go? What's the best headphone? There isn't an answer.
How do I deal with XYZ issue with my kid? People want to hear from other parents. There's plenty, I think, of commodity content on the internet, and indeed, a few companies have been vaporized by AI, but not Reddit. Instead, I think Reddit actually becomes more and more valuable over time, and people start to appreciate what Reddit does more and more. We keep doubling and tripling down on our mission, communities, authenticity, Reddit being the most human place on the internet, and having confidence that however the ecosystem evolves, Reddit will be a destination.
Great. Let's do another current event, which is, how do you see the competitive risk from Meta's new Forum app, and what differentiates Reddit's model versus any other on the internet, much less that?
Sure.
Yeah.
Yeah, Meta released an app called Forum, which I think is just a reskin of groups. Reddit and groups, Facebook groups have coexisted for a very long time. Our moat is very wide and very deep. I think if you look at, we predate basically every social media company you've heard of. We'll be 21 years old this summer. If you look at our traffic graph over time, you can't see the evolution of any of these companies. You don't see the rise and fall of anything. It's almost like Reddit is just playing a different game, because there's some similarities at first, right? It's posts on the internet. I think the interaction and the feeling is completely different. What other companies are doing in the social media space hasn't really had any effect on Reddit.
The thing that affects Reddit is Reddit. What has driven our success in the past has been how well we're executing, how well we're meeting our own users' needs. That'll be the primary, if not only driver of our success in the future. It's like, again, I go back to my first answer where we've got the seven-day-a-week users and one-day-a-week users. Those seven-day-a-week users could use any platform, they choose to use Reddit every day. I think that potential is there for actually every single user.
Got it. Okay. Let's move on to capital allocation. You did some buybacks this quarter. You haven't been a big acquirer over time. How do you think about that? You are generating a ton of cash now, so it might be a little different. How do you think about that?
Yeah. It's a maybe first-class problem. We are generating a lot of cash. Reddit is a very light business. It's a great cash flow business, which is not something I imagined hearing myself saying 10 years ago. I'm actually really proud of the, you know I kinda live in the user's product feeling side of this company most of the time. Seeing it be such a great business is, I think I'm very proud of that work. Okay. Anyway, capital allocation. First priority is invest in the business, AKA hire.
Yeah. Got a lot of margin to work with, though.
We got a lot of margin to work with.
Yeah.
Well, once you get it's hard to take it back. Nevertheless, hiring. We've been a modest headcount grower, in this mid-double digits, mid-teens, excuse me, for the last couple of years. I think that's the right level for Reddit. Broadly, our management goal has been to grow revenue twice as fast as costs. We've been doing better than that. We just want to make sure that we're staying in line there. First, invest in the business, which is hiring. Right now, this is primarily ML engineers. We'll probably invest in video as the other, I think, big product area for us looking forward. Sales, of course. Second is M&A. We're not a big player in M&A, or haven't been historically. We've done tuck-ins here or there. It is a muscle that we're developing or want to develop.
primarily for people in technology. It's really another way of looking at investing in the business. Third would be buybacks. As I mentioned, we've bought a million shares this quarter, and we'll keep doing that as the opportunities arise. I think we're in a great position where I think we can fund all of the hiring we want to do, we can fund the M&A we're looking at, and we can afford to do buybacks because Reddit has so much cash flow.
Got it. Dovetailing into that, just the financial model, what do you think makes it unique? You've got gross margins that are better than pretty much every company I cover. How do you maintain that, and what do you think about the financial model?
Yeah. It's revenue growth 60% or more for the last seven quarters, gross margin over 90%, GAAP profitable. Truly a one of one company in that regard, and I think it comes down to a couple of things. I mentioned before we've been modest on hiring, I think that's the number one management lever is just being very disciplined about how fast we grow headcount, because that's really growing costs. Two, our CapEx last quarter was like $1 million, we're just not a big spender. We're not building data centers. I'm grateful for other companies that are doing that. They build the data centers, we rent the GPUs, that model has worked great for us. Our platform is lightweight, our company is lightweight.
I think that is a structure that has served us very well, and so it allows us to be, I think, very nimble, allows us to generate a lot of cash, allows us to do interesting things on the M&A side, and things like buybacks, and while continuing to invest in the business. I look at some of our peers in the space, some of the challenges they faced, and we can see those things coming, and investors, by the way, ask all those questions. It's just very important to us that we're telling a different story. Which is why it was so important to have high margins out the gate, get to profitability quickly, show that we can grow the company without growing headcount. Because we've seen what happens when you don't kind of mind these things.
Got it. On that, just thinking about your margins and how your goal is to get to 100 million users, why not hire 30% growth so you can get there quicker? Is this just not how it works? How do you think about that?
Our new Chief Technology Officer, Amit, has this saying that's quickly become one of my favorites. Two Engineers can do in two days what one Engineer can do in one day.
Look, if there are opportunities where we can turn money into instant return, of course we'll do that. It's rarely that simple.
Yep.
Look, in some areas, like are we hiring a bunch of ML Engineers? Did I say ML is probably going to be the number one driver of growth? Yes. To some extent, we're doing that. A big investment for Reddit is dozens of Engineers. It's not hundreds or thousands. I think the most important levers for productivity are: Do you have the right strategy? Are you consistent? Are you executing well? Do you have your courage of your convictions to see these projects through? Even if maybe they don't work in the first launch or first iteration or second iteration, just kind of have a belief in the outcome. I think those things for any company are what's most important, is having the right ideas and consistency.
I do think, if we are successful in improving new user retention, which is really, I think, the output of having great product quality, that opens the door for increasing, for example, marketing spend.
Getting a better return there. We keep an eye on this, right? We look at this machine, we want to be well-positioned to really step on the gas. I think for Reddit, the core strategy is removing friction from the machine, and that's not like a manpower. That's not like man-hours. That's doing like smart hours.
Got it. Okay, I'll ask one, and then we'll see if there's one from the audience. Your growth has definitely outpaced Street forecasts since you went public on the revenue side. Where are you when you were very under-monetized when you went public? Where are you in that journey to catching up to all the usage, and what are maybe some unlocks going forward?
The business team's been doing very well. I think we have the ads products are working well across the entire ecosystem, so large, medium, and small customers, full funnel all the way from consideration to transaction. I think one of the things that's been very powerful for us is that Reddit, the conversations on Reddit are naturally commercial. 40% of what people talk about on Reddit are commercial. Just turns out, what do human beings talk about? It's like, what should I buy next? Now it's not always what should I buy, but it's like, what should I watch? What should I wear? Where should I go? What's the best XYZ? There's a natural, I think, alignment between the consumer product and then the ads business on top of it. Our ad technology's gotten consistently better. I think we have a lot of market tailwinds.
Advertisers want Reddit to be successful. They want to spend money elsewhere. They want to spend money with us. The conversations I have with customers have changed dramatically over the last 10 years. It used to be all brand safety, and then I think we did a really good job on safety, and then it became, what is community? They're like, hey, you're not social media, you're community. What is that? Now they totally get it. They're users of Reddit themselves. Now it's just, hey, we need this measurement, integration. They'll come with their to-do list for us, and more reach. As I mentioned before, I think Reddit the business can very consistently and reliably turn traffic into revenue. It all comes back to growing users in a healthy, reliable, sustainable way, and the business, I think, will follow.
Okay. We'll see if there's a question out here. I got plenty more, but anyone? Here's one over here.
For internet, I'm curious what concerns of the Google and OpenAI partnerships and what's the ideal ad partnership look like going forward?
Yeah. What we said during earnings is that the content on Reddit is like oil and that it's a foundational resource that enables this modern technology. Truly, AI, as we know it, does not exist without the content on Reddit. It's one of the largest sources of training data. That's on one end of the stack, like create the models, Reddit is the most cited destination across all models. That's the other end of the stack. Reddit is used in pre-training, create the whole model. It's used in post-training, like teach the model how to speak like a normal person. It's used in grounding, like what do people actually think. On top of that, these models are running on a live search index of what's going on on Reddit. It's essential for the entire stack.
When we did the first round of these relationships, this was two years ago, the field was brand new. What we've learned over the last couple of years is both, I think, within our company and within our partners' companies, and I think just the internet more broadly, has seen how important Reddit is. If you're using LLMs, you see Reddit all over the place. I think these relationships are essential for everybody involved, for all parts, right? The internet consumer wins, I think the search platform wins, the AI model companies win, and then we win as well. We would get both traffic and mind share. I think we have mutually a better understanding of where the value is, and it's our job to make sure we've fully captured that value.
I will say these relationships have been complex, or rather the deals are complex. They're almost like M&A deals. The relationships, I think, have been mutually really valuable, and so everybody, I think, is incentivized to continue doing them.
Got it. All right. We only have a couple minutes left. I definitely want to get these two in.
Okay. Do it.
We'll go a little more rapid fire, but I know a lot of people care about the Search product rollout.
Where are you with that, and how are you thinking about possible revenues from Search?
Yeah. There's three use cases of Reddit: feeds, community, and Search. Search is the newest. Search has grown 30% year-over-year on Reddit. Our product, formerly known as Reddit Answers, now just known as Reddit Search, is the LLM Search product. That was a brand-new product last year with like a million users. Now I think last quarter was 15 million users, so that's growing nicely. Many new users run a search in their first session on Reddit, Search is an essential part of the onboarding journey. Reddit Search, I think, is the best at questions with no answers. You could try it right now. Like, what show should I watch tonight? I like this show. What show would you recommend? I need help with this video game. What's the best headphone? All these things. Now, a couple of those examples, or maybe all of those examples, are also commercial searches.
We've started to integrate products into the search results. I think we'll be able to do more and more integrations like that, but really bringing our search results to life, and kind of marrying, I think, the organic user need with the advertising product. Because again, it's such a natural fit. It's what the users want anyway. I see a lot of opportunity there. Over the last year, we've done more product integrations. We announced a partnership with Shopify to do basically a one-click import of people's catalogs. Those things start to show up in Reddit ads, in Reddit Search. I think a lot of opportunity there as that Search product continues to differentiate itself, continues to grow, and provide more and more value for the searcher.
Got it. No ads right now, right, in Search?
Ads are coming. Right now it's like product links. I think the reason I stutter is because I don't think the user cares.
Yeah.
They say when I search for a headphone, I see a link for a headphone, they're happy. The monetization of that for us grows over time or starts to develop over time.
Got it. All right. I'm going to sneak one macro.
Great
Before we wrap it up, t he subject definitely has been subject to macro challenges. You mentioned that earlier to the user's question, but seems like the market was not impacted much on results. Your Q1 was quite strong on the Middle East conflict. Why do you think spend has been so resilient so far this year? Maybe what differentiates Reddit if things do get a little worse going forward?
Yeah, we have seen confidence in the market. I think what we've seen, it's a good question. In the past, when the ads market seems to be sensitive with just what's going on globally. We'll see shakeups, so the whole industry will. It's been remarkably consistent. I'd say what we're seeing is maybe a lack of visibility, and so people's horizons are maybe shorter than they've been, but the spend is still there. I think people have macro concerns about the U.S. economy in general, but the consumers are still showing up, they're still buying. As long as that activity is still there and we hear a lot of questions about it, but we're not seeing any signs of weakness from our point of view. It's not to say that there can't be more, but it's hard to imagine how could the world be more chaotic.
That's a-
Famous last words, I guess, right?
Great way to conclude. That's awesome. Thank you so much, Steve.
Thank you.
For being here. I really appreciate your time.