Reddit announced growth across most business areas during the second quarter. In particular, the social media network has seen an increase in both daily and weekly users, as well as revenue, despite CEO Steve Huffman’s warning that one source of traffic that Reddit has grown accustomed to may see a decrease in the future.
User Growth Keeps Climbing
Reddit has seen another increase in its slow but steady progress towards mainstream acceptance recently, hitting 130.3 million daily active users, up 3.5 million from the previous quarter. The website has had a difficult time competing with other social networks for mindshare. The growth is healthy, if unimpressive, and sees Reddit continuing its gradual expansion over previous months and years.
The most interesting part about the latest update to Reddit’s user growth figures is not the sheer increase, impressive as it may be. Rather, it is the hint at what makes Reddit tick, in comparison to the rest of the social media landscape. The company has an unusually steep ratio between its daily and weekly active users. For other social networks, the number tends to be right about 2:1, if not more, with hundreds of millions of daily active users on platforms like Snapchat, and a number close to double the figure for monthly active users.
On Reddit, its ratio is closer to 4:1, and that says interesting things about the kind of product Reddit is. Contrary to the rest of the social media landscape, which is dominated by daily engagement with the product, a significant portion of Reddit’s engagement comes from users who only show up periodically, seeking specific information. In essence, most regulars are not addicted to being on the platform 24/7, but rather use it as a resource to tap into when they need something specific, and move on.
Why Reddit Users Behave Differently
This pattern reflects how Reddit content is increasingly driving engagement outside of the platform. Individual Reddit threads are driving a lot of traffic from search engines and are being actively used by AI chatbots as a source of information and human answers. Reddit is one of the most commonly cited domains by AI search engines, and this attracts users via search, but not in the same way as traditional habitual browsing.
Huffman notes that this is a positive development for Reddit’s advertisers, as the users who come to Reddit via search engines are typically more motivated and interested in the specific topic they are looking for.
This poses a challenge for Reddit in terms of growth, however, as Huffman himself acknowledged that Q2’s traffic from referral links was turbulent, and Reddit’s engagement depends to a large extent on the number of users who find Reddit through search engines and AI chatbots.
In other words, unpredictable changes in the number of such users will have a major impact on Reddit’s traffic and therefore on its revenues. This is why improving the algorithms and user experience to encourage as many as possible of these occasional visitors to return to Reddit as regular users is such a crucial goal for the company.
A Different Kind of Value Proposition
It is crucial to note that Reddit’s subreddits maintain an active engagement of users no matter how distinct the platform’s dynamics are as compared to the rest of the social media segment. In particular, while the overall trend of the user base growth is driven by one-time visitors searching for specific information, the actual Reddit user base remains highly engaged with the service. The company essentially has two types of users – those that actively participate in the online subreddits and the ones that are essentially one-time visitors. It allows the company to operate as a social media network with a strong focus on building and maintaining the online communities. In the earnings call, Huffman positioned Reddit as a medium that brings human connection to the “human touch” at a time when many interactions are being automated by artificial intelligence tools.
He further stated that they provided what many other websites cannot provide at the moment: a personal touch in contrast to an algorithm-driven suggestion. The quote above is the most impressive one in the entire presentation as it essentially positions Reddit as fundamentally different from the rest of the social media segment. It removes the direct competition with Facebook, Instagram, Twitter, and the likes by focusing on the unique value proposition that distinguishes the online forum from the competition. As such, it is an extremely skillful rhetorical choice that, once again, demonstrates the superior understanding of the business by Reddit’s leadership.
Revenue Growth Outpaces User Growth
On the financial front, Reddit reported $805M revenue for the quarter, up 61% YoY and 21% QoQ, representing a significant increase in revenue for the company. It demonstrates that Reddit continues to benefit from the increase in the user base, as well as its status as a preferred source of information for AI tools, which in turn drives advertising demand.
Notably, the growth in revenue was accompanied by a sharp rise in expenses, up 30% YoY, of which 62% are allocated to sales and marketing. It shows that Reddit is willing to reinvest a significant portion of additional revenues into the growth of the platform, rather than speculate on the current traffic growth and ad revenue success. In particular, a shift towards direct sales and distribution of data licenses enables Reddit to both diversify and secure its revenue stream, addressing the key concern of referral traffic dependence outlined by Huffman.
Moreover, it allows the company to strengthen its position as a preferred supplier of data to AI companies, which in turn benefits from the growth in adoption of third-party APIs and increased overall demand for data for training and fine-tuning models. The increased emphasis on direct sales supports this thesis, as does the focus on improving the value proposition for advertising partners, including those in the AI space.
What Comes Next for Reddit
The bigger long-term question for Reddit is whether it will be able to substantially shift its user base from weekly to daily, without undermining the qualities that attract non-core users to the platform in the first place. The challenge is not trivial, as the products best at driving total session counts tend to be the least conducive to engaging users multiple times a day.
Still, with revenues rising more quickly than users and DAUs (daily active users) consistently up and growing, Reddit appears to be in a relatively strong position to benefit from the next phase of AI development, even if its growth trajectory proves to be distinctly more moderate than that of social media properties such as Snapchat and TikTok. For now, the company’s ability to occupy a unique niche as a source of high-quality human-curated content appears to make it an asset to both advertisers and AI developers, and its success in the coming months will be determined by its capacity to drive higher numbers of its users to engage with the service on a daily if not habitual basis.
FAQs
Q1: How many daily active users does Reddit have now?
The number of daily active users for Reddit was 130.3 million in the second quarter, which is 3.5 million more than the previous quarter.
Q2: How is Reddit’s weekly-to-daily user ratio different from other platforms?
While social media platforms typically have two times more weekly or monthly users than daily users, Reddit has a ratio of 4 to 1, so the majority of the users are only visiting the website occasionally.
Q3: Why do so many Reddit users visit only occasionally?
The reason why Reddit attracts a bigger amount of users that are not active daily is that the website is often found in search engines and is driven by AI, thus not requiring people to log in to check their favorite subreddits.
Q4: How much revenue did Reddit generate in Q2?
Reddit’s revenue is projected to be $805 million in the second quarter, which is a 61 percent increase year over year and a 21 percent increase from the first quarter of 2023.
Q5: Why did Reddit’s operating expenses increase?
The operating expenses rose by 30 percent year over year due to a 62 percent increase in the spending on sales and marketing to promote the site’s expansion as an advertising platform.
Q6: What did CEO Steve Huffman say about search referral traffic?
Steve Huffman stated that search referral traffic in Q2 was choppy and acknowledged that the majority of Reddit users were still found through search engine.
Q7: Why is Reddit frequently cited by AI chatbots?
Reddit is one of the largest websites that provide information to AI search bots since it includes uncensored human opinions.
Q8: What is Reddit doing to reduce its reliance on referral traffic?
Reddit is looking to increase the number of daily sessions per user by enhancing the design and algorithms to promote the subreddits and engaging the users more actively. The website also wants to expand its data licensing and AI partnerships.
Q9: Are Reddit’s communities still highly engaged?
Yes, the subreddits are still very popular and active, with their users being one of the most loyal online communities.
Q10: What is Reddit’s biggest long-term challenge?
The largest threat to Reddit is the inability to increase the number of daily users since the majority of the audience is acquired through search engines and tends to leave the website often.
