In the interest of time, I think we're going to get going on the next one. It's my pleasure to host the team from Reddit at the conference. We've got Steve Huffman, CEO. Steve, thanks so much for being part of the conference.
Eric, my pleasure. Thanks for having us.
Okay. Before we get started, I've got to do my legal duties. Some of the statements made today could be considered forward-looking. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to Reddit's Forms 10-K and 10-Q, including the risk factors. Any forward-looking statements made are based on assumptions as of today, and Reddit undertakes no obligation to update them. Okay. With that out of the way, you went public in the middle of 2024. The company has scaled meaningfully since then. Talk a little bit, let's go backwards before we go forwards, and talk a little bit about the journey the company's been on and how the company has evolved over the last 18 months.
Since going public, it's been a nice run. We have been profitable on a GAAP basis for a while now. We've had 60% revenue growth eight quarters in a row, and 90% gross margins. We were added to the S&P 500 a couple of weeks ago in a surprise adding, so that was just a nice little bonus. I think the success we've seen as a business is something we're very proud of. And I think we're on a great trajectory, and we're very excited looking forward.
Okay. When you do look forward, what are the one or two user-facing developments or things you're working on that you think have the greatest potential to change the company when you think over the next couple of years?
People crave human connection more than anything. We see at Reddit that the formula for us is pretty simple. When we make the product better, we grow, and we grow in our most valuable cohort of users, which is users who are interacting with the communities on Reddit directly. We see every day a few hundred thousand unattributed new app downloads. This means not referred from Google, not paid. People who are curious about Reddit, downloading the app and trying it every day. The most important thing we can do is help those users be successful, help them experience the magic of Reddit. This is not easy, because at the surface level, Reddit might look like social media, but the actual content and experiences are wildly different.
Making that connection and helping those users be successful, and experiencing Reddit the way we intend it to, that's the name of the game. The work that I'm most excited about, I think, is our feeds work. In the feed, the feed both is an opportunity to educate the user of what Reddit is, show off what Reddit is there, help them or what is there for them on Reddit, help them discover new communities on Reddit. In this era with AI and LLMs, we can have an opportunity to do a much better job at this, because we can organize the subreddits better, know what's there better, make that connection more effectively. I think there's a lot we're excited there. The TAM of Reddit is every internet user. Every person on the planet has communities, has hobbies, has interests, have things they're going through.
Reddit can be as big as anybody, and it's in those first moments when you open the app for the first time that I think we have the most opportunity to make that connection. In the last quarter, we improved retention of new users by 50%. That number historically has been difficult for us to move, and now we're chipping away at it. That's something we're very proud of. This is driven by ML in the home feed, this is driven by performance, this is driven by converting web users to app users. We're starting to see some momentum there that we're very excited about.
Just to put a finer point on that, the number one needle mover is here comes someone into your app and making sure they see and get sourced the right amount of content is pretty critical to driving that retention metric you talked about.
Yes. There is actually two cohorts of users where this work helps a lot. It is the new user, which is we have been talking about. Okay, you are a new user, what is Reddit? What are the magical experiences? I will give you an example. One of our fastest-growing communities this year, actually the fastest-growing community this year on Reddit is called Girl Dinner Diaries. A post on Girl Dinner Diaries is a picture of food, like microwaved food, and then a long story about their bad boyfriend. It went from zero to 6 million readers this year, and it really exploded this summer. If you see it in the feed, it looks like a picture of chicken nuggets. But if you read any of those posts, it is a story that is literally never been told before.
There are many of these every day, and there are thousands of comments on every one of these posts from this community. It is not just women. I know about it because I am reading it too.
Oh, yeah.
The opportunity in the feed is to create more of these magical moments for our users because this content doesn't exist anywhere else online, and it's really interesting. The same is true, the other cohort of users that really matter is the core users.
Yeah.
Helping them get to what they're looking for on Reddit. I might open Reddit because I want to be entertained. So that was an example of entertainment. But I might be looking for the thread of the episode I just watched, or the game I just watched, or I might want to run a search, or I might want product review information, or I might want help with something. These are all the use cases that you might open Reddit for. Figuring out what my need is and getting me there quickly, that's where we have a lot of opportunity as well. Conveniently, the work we would do to make the new user experience better and the core user experience better is the same.
Yeah.
It's that triage in the first moment. What are you trying to do? Let us do it for you. I think we have a tremendous amount of opportunity there. Every time we make improvements there, big or small, everything we care about moves in the right direction. So it's fun work because we get to make the product better, and then we get to see it help make the business better.
You said something really interesting there, the uniqueness of content, and if we painted a broad brush, more and more the internet's being impacted by AI. How do you think about Reddit's place in the broader internet ecosystem relative to the wave of AI-driven content that's making its way into our daily lives?
Well, we have a word for AI content. It is called slop, and people don't like it. I'm only half-joking. AI is very powerful. AI search is very powerful. But the more that the Internet is summarized and sanitized, I think actually dehumanized, the more a platform like Reddit stands out because people want to connect with other people about their interests, their passions, whatever they're into. The example I just gave about Girl Dinner Diaries, AI can't do that. AI is not a bad boyfriend yet. Maybe it will get there, but then I'm sure there will be a subreddit for whatever, my AI boyfriend wasn't supportive or is too supportive or whatever it is. My point is there are all of these experiences and perspective that come from other people, and that the AI world creates a premium on these human experiences, and that's what our product is.
Reddit stands out even more. It's not dissimilar from the journey we went through over the last 10 years where Reddit stands out because it's not social media.
Yeah.
Now we're in the era of Reddit is not AI. The paradox there is we use AI all over our product. We can make a better product, a safer product. Reddit's content is used to create AI, but ironically, Reddit is for humans.
Yeah.
There's a big market need for those human experiences.
Okay, we've talked about the content being unique, and you've talked a little bit about how you're onboarding newer users to the platform while still serving your core users to the platform. Can you talk to us a little bit about what you've learned and seen around user engagement in the past couple of quarters?
We're seeing some great things there. In the last quarter, we saw 1 billion new posts and comments. That's about 4% of our corpus. We're 21 years old. 4% of our corpus was created in the last quarter. Contribution is growing in a very healthy way. Overall engagement can be a little trickier because users season into Reddit over time. The longer a user is on Reddit, the more communities they're a part of, the more time they spend on Reddit. New users can sometimes dilute overall time spent. That's a good thing because we're bringing in more and more users into our communities, and they go deeper and deeper over time. Our core users are engaging even more and contributing even more. We like what we see there right now.
Okay. Pivoting to the relationship with Google. You have a partnership with Google. Can you talk broadly about how that partnership, what it does today, its existence today, and how you think about the relationship, which is multifaceted between yourself and Google and how it's evolving?
Sure. We start with the informal relationship, which is the Internet consumer has long benefited from Reddit being well-indexed and showing up in Google because many people start their Internet session with Google, and then they end up on Reddit, often on purpose. We can see this because the word Reddit has been in the top 10 searched words on Google in the U.S. for the last couple of years. There's only a couple of brands in there. It's usually things like news, map, weather, Reddit. The Internet consumer wants Reddit content. There's no question the value of Reddit to the Internet consumer and the value of Reddit's data for search platforms like this. There's also 10 blue links where Reddit has been a fixture for a long time, and now there's AI Overviews. I think all of these things are different touch points.
I can't comment on some of the specifics because we're in active negotiation. But the foundation is the Internet consumer wants Reddit by name, and a search platform needs Reddit's content because that's ultimately what people are searching for.
Okay. To broaden it out, how do you think about that role of Reddit content not just in the four walls of Google but in the four walls of a wider ecosystem of as people continue to query various platforms and your content being unique ends up being a source of traffic for a lot of other platforms?
Right. So again, at the foundation, people are searching for answers.
Yeah.
They're searching for knowledge, and Reddit is one of the best repositories of human knowledge on the Internet. And so we'll show up in search indices, on AI models. I think what this shows is the opportunity for the users who don't know about Reddit yet, who are accessing it indirectly, for them to be direct Reddit users because we can meet their needs better than anybody else because we have all of the data, and it's all organized and labeled. And so I look at all of that indirect usage as basically the opportunity of our direct user base, or the opportunity for the increased size of our direct user base, and converting them to Reddit users. Many of them are already direct Reddit users.
As I mentioned before, they search for Reddit by name, so they know they are going to end up on Reddit one way or the other. We want to convert the other half and let them experience Reddit directly as well.
Okay. Just last one on this topic. When you think about that partnership today, how would you differentiate between the traffic element of the partnership and the data element of the partnership?
What is most valuable to Reddit is bringing users into the Reddit ecosystem. We want to grow our direct user base. That is where our business lives. The Reddit business that has been growing over 60% for the last two years, that largely exists in our app and in our core user base. Anything that helps grow that ecosystem is really important. Traffic that is logged out or transient is just less meaningful to us, which is why we can see volatility in SEO traffic, and that does not turn into volatility in our business. It is because the two just are not really that connected. But within those logged-out users are lots of opportunity for core Reddit users. That conversion has been really important to us. Converting those mobile web users into app users, we have been doing a lot of that the last quarter.
That is part of the reason we are able to drive user retention so much in the last quarter, is we are converting these users who are basically already Reddit users into the app. On the data side, it is a different conversation. Reddit's data has been used to create every AI model that you have heard of, some with our permission and some without. The value of that data is tremendous, and I do not think anybody is debating this at this point. Furthermore, the companies are not even denying having used Reddit data at this point. It used to be maybe an open secret. Now it is just open. For us, I think whether these relationships are formalized or not, Reddit wins because we have the data.
We have the content that the models want, we have the content that the internet consumer wants, and we will productize it and expose it in a way that is most accretive to Reddit. That could be through partnerships, which we've done so far. It can also be building our own products around search and shopping and all of these other behaviors that I think are important. I think either way, Reddit's in a great place because we have the fundamental thing that people want, which is the knowledge and perspective that comes from other people.
Okay. Anchoring around what you talked about earlier with the uniqueness of content on the platform, one of the most important aspects of the company is the moderator community in fostering and growing that unique content. What's the current health of the moderator community and Reddit's relationships with mods today?
When we say moderators, it's different than other platforms. Moderators are not employees of Reddit. Moderators are the users who create communities, and they're the lifeblood of Reddit. Reddit is communities, and these are the people who create the communities. They write the rules. They're the stewards of the culture of these communities. Our relationship with mods is good and deepening. There's lots of different touchpoints here. But the moderators are involved in every aspect of Reddit, and I talk to them a lot about the things we're building, the things they need, where we're falling short. We get a lot of feedback from them. One of the evolutions I want to go through that we're in the middle of is the moderators basically have the ability to remove content from subreddits. This is how, for example, a community I mentioned, the Girl Dinner Diaries one.
Communities like that, where when you go read every post, and every post is in the same structure and tells stories in the same way, that doesn't happen on accident. The mods are doing real work there to reveal that. We want to help mods be more effective at that and evolve them from having to be the bad cops all the time. This is another area where AI is really exciting, where LLMs can be really helpful, which is enforcing the community rules at scale. Instead of the mods having to do that, the mods can write the rules, they can set the tone, but we can let the computers do the dirty work, and then mods can be the good cops. They can be the stewards of culture. They can do the things that bring users in.
They can feel really great about growing their communities. I think that evolution is something we're very excited about, is helping AI do the day-to-day stuff, and with mods being the guiders of that, and let the mods do the more fun work and really create and deepen these community experiences.
So sticking with that theme and maybe playing it out over multiple years, what do you think the number one or two things you'd like to build from a product standpoint that would help moderators more generally and continue to grow the community and continue to scale sort of the satisfaction of folks who want to play that role as moderator?
So there's two things. The first is what I was just touching on. Helping mods. This is something we have out now and are iterating on it, called the Rules Hub. So letting the mods, you write the rules, and then you can see how those rules would impact your community. So you can get the rules really dialed in so that you bring into your community the exact users and content that you like, and you can keep the rest out.
Yeah.
An important part of communities, just for what it's worth, is the boundary, right? If there's not a boundary, like outside and inside, non-member, member, that sense of belonging, there's no community. So the boundary is really important, and so the mods maintain that boundary, but AI can help them be much more effective at that. The second thing we're doing is in the feeds. The feed is the primary way new communities are discovered. The feed is how we help the user find the communities they may love. And so when done well, you can grow a community with community members that contribute and make the community better and better. If done poorly, you send a fire hose of users every which way, and the community experience actually gets diluted.
That triage, that matchmaking process, that's the job of the feed, and I think we can continue to do a better job at that. The example I keep using today, Girl Dinner Diaries, I think it's a really good example. It's a small community of people who contribute to it, but the reading audience is vast. And so helping it get discovered, but also keeping it safe and protected, that's the double duty that we do on the feeds. We can help mods be better mods, and we can help mods grow their communities in a healthier way.
Okay. That's really helpful. If you look at the balance sheet for Reddit, you've got $2.8 billion of cash on the balance sheet as of the last quarter. And estimates of the sell side would have you generating over $1 billion of free cash flow this year. How do we think about capital allocation for the business? What are your priorities, especially when you think about the balance sheet you have relative to optimizing for returns?
Reddit as a business is one of one in our ability to generate cash, especially at our scale. We have three priorities. The first is invest in the business. This is quite simply people and compute. So hiring people to build the products that we want to build and getting the compute to run the engine. The second is M&A. We're getting more active in this space, just finding other companies that can accelerate our roadmap, bringing great tech into the company, bringing great teams into the company. And third and finally is share repurchase. We've done, I think, $250 million this year, probably on track for about $500 million. There's opportunities for us right now to continue doing that. We'll do all three. But it's really invest in the business, look at M&A, and share repurchase.
Maybe just to parse out two of those. With investing in the business, what are the two or three things you're the most excited about allocating capital to that can grow the business over the next three to five years?
It's the core product.
Yeah.
It's the core product first. I say it in one word, feeds, but there's so much behind that. It's the engine, that recommendation engine that powers the feed, that powers push notice, that powers emails. But it's also really onboarding, right? It's bringing new users into the right place on Reddit. It's navigation. It's helping core users like me find where they're going in Reddit. So that's a big investment of ours.
Yeah.
I think we said we're probably a year behind the state of the art, a year to 18 months behind the state of the art for feeds. I think there's a lot of opportunity there. So that's people and compute. Other areas are search, are video, is shopping. We think of Reddit as our work as horizontal. So what is the infrastructure that makes all of Reddit better? This is like the recommendation system. This would be like the video platform. This is the search system. And then the vertical slices through that. What are the specific use cases that each community can use to build on top of those things? We're doing both right now. Reddit looks like a simple feed of posts, but it almost behaves like a super app. There's so many different use cases in Reddit.
There's so many opportunities to productize every single vertical, right? I'm a game player. I'm a video game user. I'm a TV watcher. I'm a sports watcher. I love reality TV. I'm a parent. There's all these different, I'm shopping for something. So revealing each of those use cases really intentionally is the other set of work that we do.
Okay, and then just follow up on your answer around M&A. I just want to make sure I understood the clarifying point. It seems like there's the ability to either buy versus build, and M&A could be a lever that could accelerate product capabilities, talent in the organization. Is that the way you kind of think about it as opposed to scale? There tend to be two types of M&A.
Yeah, exactly. For us, it's team and technology first.
Yeah.
As opposed to expanding our land.
Yeah.
So we've had a lot of success, particularly on the ad side bringing in technology that's accelerated our roadmap, bringing in experts. One of the best way to bring in the top talent is through acquisition. For us, I think down the road, there will be opportunities to expand Reddit's user base through M&A. Today, the best way to grow users is to improve our product and technology because we have so many new users trying out Reddit every day, right? Hundreds of thousands of people every day downloading the app for the first time who are curious about Reddit. That's a massive opportunity. Meeting their needs, that'll drive the growth that fuels our business in the most healthy way. That's where our attention is.
I would love there to be a day down the road where we feel really great about that new user experience and retention, and we can widen the aperture. Today it's technology, it's teams, it's those experts that can help us realize the core value prop of Reddit.
Okay, super clear. We only have a few minutes left, but I want to try to bring all of our conversation together in maybe sort of one big picture question. I don't know if it'll be one answer or if we'll go a little bit deeper. If you think about what you've talked about so far, Steve, the business is operating at a certain level of growth and a certain level of margin that's very good. Then there's these debates around users and Google and other things. So you have a business operating on one side and a stock that's down year to date. Talk a little bit about what you think investors might be missing in the scheme of the stock relative to what you see from inside the company and the way the business is operating.
Sure. That's a great question. If I were to go through the misconceptions that I hear a lot, I'd start with one, people wonder about just the TAM for Reddit. They'll say Reddit is a niche product. I'd say, look, Reddit is a community product, and every person belongs to communities, has interests and passions. Therefore, the TAM of Reddit is the entire Internet. Reddit's communities might be niche, but it's every niche. Not all of our communities are niche, right? Our communities also represent news, sports, politics, video games, these massive categories. So that's one, is people just think Reddit is always going to be smaller than the biggest people, and I would say Reddit can be as big as anybody.
The second sits downstream from that is I think investors worry that Reddit is going to get stuck at the $4 billion-$5 billion revenue range. Because some of our similarly scaled peers have gotten stuck there. But the difference between Reddit and I think the other people at our scale is again, that our TAM is literally everybody. It's not a product that's episodic. It's not a product that's limited demographically. Literally, if you're call it over the age of 17, man, woman, nerd, normie, super Internet user, casual, there's something on Reddit for you, for sure. Combine that, so the universal appeal on the user side, 40% of the conversations on Reddit are commercial. So it makes Reddit a natural place for advertisers to be. Every company's customers are on Reddit somewhere probably talking about their company, if not their space or a specific product.
The commercial opportunity is actually far greater than I would have even guessed a decade ago. My partner in running Reddit, Jen, she joined us about eight years ago. We were sub $100 million in revenue, now we're coming up on a $3 billion run rate. So, she and the team have built an incredible revenue engine here that shows no sign of slowing. We've been 60% for the last two years, and I think on the user side, we have so much opportunity, and user growth drives revenue growth. The third is that our ads business can't be as good as Meta or Google because we don't have the social graph. But we have the interest graph, which I would argue is even more valuable. We know what you're interested in, what you're thinking about buying, what you're thinking about doing.
Like on Reddit, these may not sound like commercial queries at first glance, but everything I'm about to say really boils down to what should I buy. But it's not what should I buy, it's what should I wear, what should I watch, what game should I play next, where should I go on vacation, what's the best restaurant, what's the best service provider? These are just things that people talk about. Not just talk about on Reddit, it's just like what people talk about. It's just whatever you talk about in the real world, people also talk about on Reddit. There's an opportunity there to make that connection between the user and the purchase, between the user and the brand, I think in a really direct way. Then the final misconception that I hear all the time is that AI kills Reddit.
Ironically, AI doesn't exist without Reddit. But the principle here is that in an AI world, there's a premium on human experiences. All of the things I've mentioned about Reddit, like all of the human perspective that drives those purchasing decisions, all of those stories that people tell on Reddit but don't tell anywhere else. This is like the Girl Dinner Diaries example. Now there's, by the way, there's also boy dinner diary and all these other offshoots. The girls are funnier in this case. Those things don't. AI can't do that. AI can replace a lot of commodity content. It can make navigating search results more effective, but it's not going to hold a conversation about the things you care about. To the extent that it can, it's coming from Reddit anyway. We have a say in that matter.
Okay. All right. I think with a few minutes to go, we're probably going to leave it there. Maybe I'll just ask it this way to kind of bring it all together. You talked about the content side, you talked about the feed side, you talked about growing the user base from the traffic you're getting today. Which of these would you tell people to focus the most on in terms of where you're spending your most time when you think about the next 12- 18 months?
As it happens, growing the users, both improving new user retention and improving the core user experience, everything points to more or less the same work. Which will come down to when you open the app, can we get you to the place that you're trying to go as quickly as possible? Are you there to be entertained? Let's show you a few funny posts. Do you want an overview of what's going on? Let's show you some news and trending. Are you trying to play a game? We've got those. Are you looking for the game thread for the game you just watched, like a sports game? We've got those too. So that work that I've been reducing to a single word, the feed, is what's absolutely the most important.
Yeah.
That investment in the feed, that investment in the feed UI, that AI investment into the guts, the back end of the feed, that's what's absolutely the most important because we have so many new app downloads every day of people who want to be Reddit users. Capturing them and getting them to come back the next day and the next week, that drives the core user base, that drives the content ecosystem, and that drives ultimately the ad impressions that fuel our business. More users returning into the app every day, that drives the whole business. That's basically our single-minded focus right now.
Understood. All right. Well, Steve, thanks so much for coming to the conference and being part of the conversation this year. Please join me in thanking Steve and the Reddit team for being part of the conference.
Thank you all. Thanks, Eric.