Reddit’s AI search surpasses Google’s algorithm in billion-dollar upvotes and downvotes.
Reddit recently completed its first year as a publicly traded company and marked the occasion with its Q4 earnings report. In 2024, the social platform achieved a significant milestone by surpassing $1 billion in revenue, an improvement from the $804 million reported in 2023. The total revenue for Q4 amounted to $427.7 million, reflecting a 71% year-over-year increase. Notably, ad revenue saw a 60% growth year-over-year, totaling $394.5 million for the quarter. Despite these commendable numbers, Reddit did post a net loss of $484.3 million for the full year of 2024 due to IPO-related expenses.
One of the challenges Reddit faced in late Q4 was a decline in search referrals, which CEO Steve Huffman attributed to changes in Google’s search algorithm. This drop was not without repercussions, as it led to a 15% decrease in Reddit’s share price during after-hours trading. Huffman acknowledged that while the decrease in search referrals did not impact revenue directly, it raised concerns among investors. The incident shed light on the platform’s dependence on Google, one of its key partners.
In an effort to expand its offerings and protect against such influences, Reddit expressed its intention to develop an AI-powered on-platform search business. By discussing this strategy with investors, Reddit signaled its readiness to explore new avenues and take proactive measures to mitigate external factors. The platform’s focus on developing a robust advertising model has been instrumental in driving growth. COO Jen Wong highlighted Reddit’s success in performance marketing and emphasized the importance of user conversations in driving ad revenue. Mid- and lower-funnel revenue was a significant contributor to Reddit’s Q4 earnings, with mid-market brands and SMBs playing a crucial role in this sphere.
Moreover, Reddit’s efforts to enhance its ad platform through creative optimization and automated testing have been successful in attracting more advertisers. The introduction of a new ad review system has streamlined the campaign review process, significantly reducing the time required from 30 minutes to just 1 minute. The platform also witnessed growth in upper-funnel revenue, signaling a positive trend with brand advertisers. Impressions saw a double-digit increase year over year, driven by user growth, personalized ad placements, and enhanced engagement.
On the international front, Reddit reported a substantial increase in daily active unique users, with a particularly strong growth rate in international ad revenue. As the platform continues to expand its global footprint, it is focusing on leveraging AI technology to enhance its search capabilities. Reddit Answers, a generative AI searchbot, marks a step towards building a search platform that offers unique content sourced exclusively from Reddit’s user interactions. Huffman emphasized the platform’s distinct approach to search compared to Google, highlighting Reddit’s emphasis on human-generated content.
In conclusion, Reddit’s robust financial performance in 2024, coupled with its strategic initiatives to bolster its advertising capabilities and AI search technologies, underscore its commitment to innovation and growth. Despite challenges such as fluctuations in search referrals and competition from tech giants like Google, Reddit remains determined to carve a niche for itself in the digital landscape. By leveraging its strengths and embracing new opportunities, Reddit is poised to navigate the evolving digital landscape successfully.
