• by Laurie Sullivan  @lauriesullivan, February 12, 2025

Reddit released earnings on Wednesday, highlighting its search features. The company's performance revenue that drove more than half of the growth and licensing data to train open-source AI models will become the key to ongoing success.

The company reported that its revenue rose 71% year-over-year to $427.7 million in Q4 2024, with ad revenue rising 60% year-over-year to $394.5 million in the quarter. Its global average revenue per user increased 23% to $4.21.

For the full year, 2024, total revenue rose 62% year-over-year to $1.3 billion, and ad revenue increased 50% YoY to $1.2 billion.

While ad revenue rose, Reddit CEO Steve Huffman said in a letter to shareholders that a Google search algorithm later in the quarter change caused some volatility with user growth during the fourth quarter, but Reddit’s search-related traffic has recovered in the first quarter of 2025.

“What happened wasn’t unusual — referrals from search fluctuate from time to time, and they primarily affect logged-out users,” Huffman wrote. “Our teams have navigated numerous algorithm updates and did an excellent job adapting to these latest changes effectively.”

The company has dived heavily into search and AI. One of the features launched during the quarter focused on search. Reddit Answers is an AI-powered conversational search product to improve on-platform search. it’s still in its early stages,  but it’s proven “versatile” as people turn to it for everything from local updates about the LA wildfires to opinions on the best coffee maker.

Reddit's daily active unique visitors rose 39% to 101.7 million in Q4 2024, though missed estimates of 103.3 million.

The company is seeing continued improvement in contextual relevance of ads on the conversation page, which drives higher conversion volume and performance revenue. It also doubled click volume for the fourth consecutive quarter and doubled conversion volume in the second half of the year versus the first half.

The share of conversion revenue supported by conversions API (CAPI) tripled in the second half of 2024 versus the prior year, and advertisers saw a 25% reduction in cost per action (CPA) when they adopt CAPI with Pixel compared to Pixel only.

Laura Martin, senior internet & media analyst at Needham, during the call with analysts and investors, said many of her clients are moving to open-source model DeepSeek rather than Google or OpenAI. She asked if the open-source models help with content creation or does it threaten Reddit’s revenue stream. 

Huffman said access to the technology has become commoditized, adding that open source will keep pace with commercial offerings, and will become accessible to everyone.

This does not impact Reddit’s opportunity for licensing. “Every foundation model that exists, including DeepSeek and those models DeepSeek pulled from, used Reddit data,” he said. “The models do not exist without Reddit data.”

Reddit is selling ongoing access to information. Huffman said that in the same way a search engine that stopped indexing in 2021 becomes less useful, the same thing happens with a foundational model.

Reddit also forecasts first-quarter revenue above estimates, driven by its AI content licensing deals with Google and OpenAI. The company has benefited from its conversation placement ads format, where brands can advertise directly into discussion threads within interest-based communities known as subreddits.

The company expects first-quarter 2025 revenue of $360 million to $370 million, compared with analysts' average estimate of $358.1 million, according to Reuters, which cited data compiled by LSEG.