Reddit(RDDT.US) FY25Q2 Conference Call: User data at the end of the second quarter has shown positive signals.

Recently, Reddit (RDDT.US) held the FY25Q2 financial report conference call. The goal this year is to make the product "instantly personalized", simplify the new user guidance (from tedious Q&A to a search bar), and allow new users to receive interest-related recommendations right from their first experience (such as Reddit Answers guide, dynamic content from relevant sources). Currently, new users often encounter the issue of "irrelevant recommendations", and solving this is an opportunity that the company is actively working on, with expected significant improvements. In the second quarter, the growth rate of US users started slow in April. However, as the quarter progressed, with targeted optimizations on the product side, marketing efforts, and user acquisition strategies, the situation gradually improved. Although there were fluctuations in Fas traffic, overall, Q2 posed certain challenges for the business, but the end-of-quarter user data (exceeding the quarterly average of 110 million) showed positive signals. In July, both the daily active users (DAU) in the US and international markets experienced growth, and the performance in the remaining period of this quarter still needs to be observed. Currently, the company's core focus is on strategic planning and product roadmap, with a focus on strengthening the execution of user growth. Regarding the advertising business in the second half of the year, the Dynamic Product Ads (DPA) tool launched in Q2 as a shopping ad tool, although still in the early stages of promotion, has already provided advertisers with a good return on advertising spending. There are plans to further expand its market outreach to attract more advertisers. The platform has implemented automated bidding and deepened automation across the platform (such as integrating Memorable AI in the pre-creative stage), which not only allows advertisers to onboard more easily but also helps improve advertising performance. Additionally, the recently launched Community Intelligence (including Reddit Insights and Community Add-Ons as two initial products) at Cannes has received positive market feedback, and there are high expectations for its broader application and greater value. Q: How have the trends of US users performed in Q2 and entering Q3, what are the user group situations, and how does DRIVE improvement plan play out? A: In the second quarter, the growth rate started slow in April. However, as the quarters progressed, with targeted optimizations on the product side, marketing efforts, and user acquisition strategies, the situation gradually improved. Although there were fluctuations in Fas traffic, Q2 posed certain challenges for the business, but the end-of-quarter user data (exceeding the quarterly average of 110 million) showed positive signals. In July, both the daily active users (DAU) in the US and international markets experienced growth, and the performance in the remaining period of this quarter still needs to be observed. Currently, we are focused on strategic planning and product roadmap, with a focus on strengthening the execution of user growth. Q: What innovations are there in the advertising business in the second half of the year that can improve ROAS for advertisers and expand their advertising procurement scale? A: 1. Dynamic Product Ads (DPA): As a shopping ad tool launched in Q2, although still in the early stages of promotion, advertisers have already obtained a good return on advertising spending through it. There are plans to further expand its market outreach to attract more advertisers. 1) Platform automation upgrade: Automated bidding has been implemented, and automation has been deepened across the platform (such as integrating Memorable AI in the pre-creative stage), which not only allows advertisers to onboard more easily but also helps improve advertising performance. 3) Community Intelligence Products: The Community Intelligence products released at Cannes (including Reddit Insights and Community Add-Ons as two initial products) have been recently launched and have received positive market feedback. There are high expectations for their broader application and greater value. Q: With Reddit becoming the most quoted domain name for large language models (LLMs) and the increasing importance of search, and with Reddit Answers now being globally promoted, what are the plans for creating Reddit search experience? A: Answers is our large language model search product, and the current focus is on integrating traditional Reddit search with the new Answers product to create a seamless search experience and place it at the core of the application, allowing both new and existing users to immediately see the search bar when looking for content. Users are divided into "seekers" (with questions) and "browsers" (pure browsers), with the seeker experience being placed upfront and allowing users who do not want to search to skip it. This feature is currently being developed and is expected to be launched soon. Its integration is expected to cover both types of usage scenarios on Reddit, and it is highly anticipated. Q: How have the user engagement and usage time evolved for competitors who have enhanced time by personalization and machine learning models? What are your observations in this area? A: User engagement and time spent have remained stable, with the core logic being "relevance retention growth". The more users use the platform, the more personalized and tailored it becomes, leading to increased engagement over time. We aim to drive this virtuous cycle. The goal this year is to make the product "instantly personalized", simplify the new user guidance (from tedious Q&A to a search bar), and allow new users to receive interest-related recommendations right from their first experience (such as Reddit Answers guide, dynamic content from relevant sources). Currently, new users often encounter the issue of "irrelevant recommendations", and solving this is an opportunity that we are actively working on, with expected significant improvements. Q: Sales and marketing expenses have seen a significant increase from the first quarter to the second quarter (from about 90 million to 120 million). Is this driven by marketing campaigns? Are there any other factors at play? A: In terms of cost growth, it has increased by double digits in the past few quarters, reaching over 30% in Q2. The acceleration in growth is due to three main factors: revenue driving variable costs (the largest factor); hiring over 100 people this quarter, pushing up costs; and investment in sales and marketing, accounting for a few percentage points of revenue, with Q2 based on a 500 million revenue base, the investment is in the low double digits (tens of millions). In future planning, we will comprehensively review the marketing funnel and market. The Q3 guidance for adj.EBITDA is 185 - 195 million, with cost structure corresponding to over 30% growth. We will adjust costs based on marketing effectiveness, and it is expected that cost growth in the next quarter will likely still be in the 30%+ range. Adjustments will be made based on business progress in the future, as guided by Q3. Q: The shareholder report mentions 50 million weekly scrollers and 60 million seekers every week. How do you view the changes in the ratio between the two in the future, maintaining a similar ratio or focusing on a specific type of user? A: Regarding the ratio of scrollers and seekers, we do not have a long-term preference for a specific type. Individual users often exhibit both behaviors in a day, and most core users already exhibit both (whether directly searching or through third-party referrals, users will engage with Reddit). To efficiently serve both scenarios, we expect the ratio to remain balanced. External searches will continue to attract new users, and both groups are critical for Reddit. Q: With 70 million searches per week, combined with Reddit Answers, is early-user search behavior more prevalent, or has the product expanded the use of search among new users? A: Among the current 70 million weekly search users, Reddit Answers is a core derived search function, located in the navigation area. In the future, it will be integrated into the core search, no longer emphasizing independent product attributes, but as a capability layer integrated across the entire product (integration can be applied to display links on various sections such as the search bar, comment page, and post detail page), so that users can understand content without clicking on posts but using this functionality. Overall, the ratio is expected to remain balanced, users will continue to exhibit both behaviors, and the function will be fully applied throughout the platform rather than existing in isolation. Q: In the process of testing Reddit Lite in international markets, what preliminary discoveries have been made regarding user engagement? How do you view the monetization opportunities of its user interface? What are the plans for broader promotion of this product? A: Reddit Lite is a refactoring of the core application experience for international testing, and is currently being optimized visually based on experience to make the application more simple and user-friendly. The focus is to quickly improve the UI and push it to mass markets, including the United States. In testing, post presentation and interactions have been simplified, removing content that may be distracting to new users, and the effectiveness of these measures has been verified. Now, it needs to be integrated into the core application and pushed to users as soon as possible. Q: Considering the value of Reddit data in the field of large language models (LLMs) and generative AI, is there a possibility that Reddit data will only be authorized to one LLM, limiting access to other LLMs, or even including traffic protection clauses to ensure that the collaborating LLM will not affect Reddit's traffic in the long term? How do you view the dynamic changes in this data authorization model? A: It is still too early to discuss future forms of collaboration, and there is still a need to explore the extent to which Reddit data can be utilized and its various applications. The current focus is on continuous learning through collaboration, building high-quality products based on the data corpus, and looking forward to the development over the next few years. Q: What is your view on Alphabet Inc. Class C testing the expansion of forums and discussion results presentation, and how does this positively impact Reddit? A: Alphabet Inc. Class C is currently in testing, with rapid product iteration that impacts every participant in the ecosystem. The Reddit data corpus is crucial for product and user experience, as "Reddit" is a popular search term for Alphabet Inc. Class C, with users searching for Alphabet Inc. Class C often looking to access Reddit. In response to user demand, it is expected that there will be more dynamic products, and as long as the data corpus grows, users will continue to search for "Reddit," which will be beneficial for us in the long run. Q: If the AI mode becomes the default, how do you think this will affect or drive Reddit's traffic? A: The impact of the AI mode on traffic depends on what users are looking for on Reddit. Regardless of why users come to Reddit, we aim to help them find answers, transforming them into core users who both explore and browse. Although there are many dynamic changes, they also create clear opportunities. Q: How is the progress in achieving self-sustainability in international markets, and what further actions need to be taken to explore international opportunities? A: In terms of the international market, the product needs to provide immediate value to users first (such as search, relevance, and personalization). Internationalization requires building a content repository, relying on machine translation of English-language corpora in the medium term. While this is progressing well, we also want to see local users building local communities, so we are empowering mods of large communities, simplifying management using AI, and developing recruitment tools to help communities get started quickly. Personalization not only promotes content but is also key to discovering new community leaders, making the development of new communities more efficient. The work on product quality, community/moderator building, community discovery, etc. needs to be coordinated to drive internationalization. Q: With a consecutive 50% increase in the number of active advertisers over two quarters, how does the product roadmap ensure continuous broadening of the scope of ad auctions? A: The issue revolves around continuously expanding the number of active advertisers and the actions required by the product roadmap. Reddit can accommodate a large number of advertisers, with direct teams working with large brands, and small to medium-sized market and businesses relying on simple automation processes. We are developing semi-automated features in key modules (including the effect module), and although end-to-end automation has not been achieved, we are gradually integrating them one by one. End-to-end automation is important for small advertisers. Once the capability is in place, we need efficient customer acquisition mechanisms and marketing to attract advertisers to the platform. We are currently working on and can scale up these efforts more effectively. For example, leveraging generative AI and collaborating with companies to optimize creative materials, we are building a central plan that integrates them into the advertising platform, and these are key to achieving the large-scale presence of active advertisers. Q: Compared to other social platforms, at what stage is Reddit's return on advertising spending (ROAS) development, and what is the source of the incremental advertising budget, whether from new advertising budgets or from transfers from other platforms? With an increase in new business data registrations, has any portion of it been converted into advertising clients, and how effective is this channel in the long term? A: When customers share their ROAS, we use it as a benchmark for continuous improvement and increased competitiveness, with the team paying close attention. Advertisers are increasing their investment due to improved platform performance and increased competitiveness. In terms of budget sources, the market is integrating, and good performance attracts budget transfers, as well as new budgets; both sources contribute to growth. Although Reddit Pro is in its early stages, more and more businesses are consulting for promotion. We are currently building the connection between Reddit Pro and the Ad Manager. For example, advertising products can be first shared as organic posts before being promoted, and Reddit Pro data can provide promotion tips. Although the connection setup is still in its early stages, there are conversion opportunities.