Table of Contents
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Reddit 101 – Reddit is a large social media platform made up of millions of small communities (subreddits) purpose-built for a specific topic. Users in these communities can share content and rank those posts with up or down votes to guide how frequently they're shown to other members. If a post does especially well, it will move to a subreddit’s main feed, which they call the front page. Moderators are responsible for keeping conversation within community parameters while “karma scores” are used to track how a user’s typical posts perform. Through posts and comments, Reddit generates as much content as Wikipedia’s entire ecosystem in a single month. This has understandably become a popular source of information for AI model companies like Google and OpenAI.
a. Key Points
- Excellent ongoing monetization progress.
- Margin progress remains brisk.
- User growth remains a polarizing and important debate.
- No comments on the rumored data licensing contract dispute with Alphabet.
b. Demand
- Beat revenue estimate by 10% & beat guidance by 11.8%.
- Ad revenue rose by 74% Y/Y compared to 74% growth last quarter and 84% growth last year.
- Other revenue (data licensing) rose by 24% Y/Y compared to 15% growth last quarter and 24% growth last year.
- International revenue rose by 84% Y/Y.
- Missed U.S. daily active uniques (DAUQs) estimate by 1.6%. Met total DAUQ estimates.
- Note that the Y/Y growth comp for DAUQs got 10 points easier compared to last quarter. I would have loved to see a significantly more meaningful acceleration this quarter than the 1 point growth boost it delivered.
- -0.2M net new U.S. DAUQs compares to 1M added last quarter & 900K added 2 quarters ago.
- Weekly actives rose by 24% Y/Y.
- Beat average revenue per user (ARPU) estimate by 9.4%.
c. Profits
- Impressively, Reddit’s incremental gross profit margin is above 95%, meaning it could still have material expansion left from this sky-high level. GPM expansion was driven by hosting efficiency gains.
- Beat $0.96 GAAP EPS estimate by $0.35.
- Net income rose 183% Y/Y.
- Beat FCF estimate by 2.7%.
- Beat EBITDA estimate by 15% & beat guidance by 18%.
- OpEx rose by 39% Y/Y, which is roughly in line with recent quarters.
- Reddit crossed $1M in revenue per employee.
d. Balance Sheet
- $2.8B cash & equivalents.
- 1.2% Y/Y dilution.
- No debt.