Home Platforms Reddit’s Ads Biz Exploded In Q3, Albeit From A Small Base

Reddit’s Ads Biz Exploded In Q3, Albeit From A Small Base

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Reddit is soaring on better-than-expected revenue growth.

The company reported just over $348 million in Q3 revenue, up 68% YOY, which blew away estimates, while ad revenue for the quarter was $315.1 million, a 56% YOY increase.

Reddit’s stock price was up over 20% in after-hours trading.

COO Jen Wong credited an increase in delivered impressions, more efficient ad load and a higher density of ads within conversation threads as key drivers of its ad revenue growth. Ad pricing was consistent compared to Q3 2023, she said.

It’s worth nothing that ad revenue grew in the quarter even without some of Reddit’s shiny new ad products, including generative AI creative tools and in-comment ads, being fully integrated into its platform, according to Wong.

But although Reddit seems to have a strong foundation for future growth, it still has a long way to go before its ads business reaches parity with its social media peers.

Audience and revenue growth

Comparisons to other platforms aside, Q3 was packed with good news for Reddit investors.

Reddit’s average daily unique user count for the quarter was 97.2 million, up 47% YOY, with strong growth across both the US and international markets. The average revenue per user was $3.58, up 14% YOY.

Reddit also cracked 100 million daily uniques several times during the quarter, which CEO Steve Huffman said was a “longstanding milestone.”

And here’s another interesting tidbit: “Reddit” was the sixth-most-Googled word in the US during the quarter.

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In terms of demand, performance revenue from mid- and lower-funnel campaigns accounted for 60% of Reddit’s Q3 ad revenue and drove more than half of revenue growth, Wong said.

Spend from mid-market and SMB advertisers grew 80% YOY, with SMB spend in particular doubling YOY.

The number of clicks driven by ads also doubled this quarter, Wong said.

The third quarter also saw the launch of new conversion API (CAPI) integrations, with CAPI adoption likewise doubling compared to the previous quarter, while conversions were up 50% compared to Q2.

New ad products

Looking ahead, Reddit is focused on rolling out new search-based ad products, Huffman said.

But Reddit’s most immediate opportunity for monetizing its audience growth is to continue increasing its ad load within the comment threads beneath a Redditor’s original post, known as conversation pages. According to Huffman, conversation page views topped 90 billion in Q3, a 40% YOY increase.

And there’s still more room to load these pages with ads. Reddit first launched a conversation ad unit in 2021, which placed a banner ad directly beneath the original post in a thread. At this year’s Cannes Lions festival, Reddit announced plans to introduce even more ads interspersed between comments.

It’s unclear just how many of these in-comment ads Reddit will add to conversation pages to maximize revenue. “Ad load is not a lever that we focus on,” Wong said.

Demand for conversation and in-comment ads remains lower than in-feed ads, but it is growing, she added, although adoption of the new in-comment units will take time to pick up steam, as tends to be the case with newer ad units.

But the company has some tricks up its sleeve to drive adoption.

For example, it recently rolled out multi-placement optimization that automatically drives an advertiser’s chosen outcome by adjusting where ads appear in-feed and in comment threads. More than 90% of lower-funnel campaigns are now using this feature, Wong said.

Adoption of multi-placement optimization is important, because performance marketers are more focused on outcomes and less focused on the exact placements they’re buying, Wong said. Automation is spreading demand out across inventory types, and could spur marketers to buy more conversation and in-comment inventory if they see those units performing, she added.

And then there’s the plan to build a shopping platform for performance marketers, but that’s a longer-term priority, Wong said. Doing so “requires catalog ingest, its own machine learning models and more complicated measurement,” she said. “We’re building that capability, but it’s a longer journey.”

And, of course, Reddit has plans to capitalize on the generative AI craze. It recently rolled out an automated headline generator that makes sponsored posts feel more like they were written by community members. This solution is based on technology Reddit acquired from Memorable AI, which specializes in understanding how creative design drives performance.

The next step for this tech is to integrate these generative AI capabilities into Reddit’s ad tech stack, rather than offering the feature as a standalone tool. “We see a very fulsome and exciting road map related to ad creative and gen AI,” Wong said.

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