Ad monetization

17 things advertisers can learn about Reddit thanks to its IPO documents

By John Koetsier February 26, 2024

Reddit is going public, which is great news for early investors, who might just be able to finally cash out on  a startup that was born in 2005. But it’s also great news for advertisers, because filing an IPO prospectus means Reddit has to provide a fairly honest insider’s view about how the platform works and what they plan to do in the near future. That means Reddit is releasing a massive amount of data about how its ads are working, how it sees advertising, and what new ad units, experiences, and measurement capabilities it plans to release. 

But there’s more.

A coming IPO also means that as a company that has yet to turn a profit after 18+ years of operation, Reddit needs to double down on boosting revenue. No one wants to IPO and then immediately lay an egg, not boost revenue in the first few years as a public company, and go below water on their open-day valuation.

For a primarily ad revenue-driven platform, that means putting its best foot forward for advertisers and — likely — getting more advertiser-friendly over the coming years. (Interestingly, Reddit is already showing some positive results that show up in the 2024 Singular ROI Index, due to be released shortly. We’re seeing revenue growth and better ranking.)

Thanks to the Reddit IPO, we’re getting a big dump of data we didn’t have before. Here’s what I found in the Reddit IPO prospectus that is interesting to advertisers …

1. Reddit daily average users

We knew Reddit had a decent number of users, though it didn’t compare with the big billion+ user platforms like Meta or Youtube or WeChat or TikTok. 

Here are the latest Reddit user statistics:

  • 73 million DAU
  • 73 million average daily active uniques, or DAUq

Clearly, Reddit has a long way to go to get in the company of other major platforms. 

By comparison Meta is massively bigger. Even Snap is multiples of Reddit.

  • Meta: 2.11 billion DAUs, 3.07 billion MAUs
  • Snap: 375 million DAUs

2. Reddit weekly average users

The numbers look a bit better for Reddit on weekly average users. Reddit calculates weekly average unique users as users it can measure with a unique identifier, either on the website or the app. As bots are discovered, they’re removed from this number. 

Reddit has:

  • 267 million average weekly active uniques

That’s growing significantly in the U.S., and less so in the rest of the world.

“In the three months ended December 31, 2023, global WAUq grew 29% compared to the prior year period, driven by 39% growth in WAUq in the United States and 20% growth in WAUq in the rest of world.”

3. Average revenue per user

Reddit does not monetize nearly as well as Meta, which captures almost $70 in value for users in North America. That’s almost 13X better than Reddit.

Reddit’s average revenue per user:

  • ARPU of $3.42 (global)
  • ARPU of $5.51 (USA)

By comparison:

  • Meta ARPU for all apps combined: $10.10 (global)
  • Meta ARPU for Facebook only $13.12 (global)
  • Meta ARPU for Facebook only $68.44 (U.S. and Canada)

On the plus side, Reddit monetizes better than Snap, which is generally around $3/user/year.

4. Size of the global advertising market, according to Reddit

It’s always interesting to see how ad networks and major advertising platforms view the world.

Reddit says the ad ecosystem is a:

  • $1 trillion total addressable advertising market in 2023 
  • $1.4 trillion total addressable advertising market in 2027 

Note: this is the total addressable market globally from advertising, but excludes China and Russia.

Reddit also cites S&P Global Market Intelligence in saying that a significant and highly monetizable segment of that is the search advertising market, which is projected to hit $750 billion by 2027. Reddit hopes to capture more of this as a result of its recently announced new partnership with Google (providing LLM training data in exchange for better search ranking).

5. Reddit advertising: triple appeal

Speaking of search marketing, Reddit thinks there are 3 main drivers of advertising effectiveness on the platform:

  1. Context
    “Reddit [is] a unique platform for advertisers due to our intentional, authentic, trusted nature and our strength in contextual and interest-based advertising …”
  2. Search
    “Whether users come to Reddit through a third-party search engine or if they initiate their search on Reddit, our users often have high intent …”
  3. Recommendations
    “Every second an average of two users asked for a recommendation, each yielding an average of 14 personalized responses.”

It will be interesting to see if Reddit can convert #2 and #3 into higher multiples of revenue, since the platform isn’t generally the first stop on a search journey.

6. Long sessions

One good thing about future potential advertising opportunities is that people who use Reddit spend a long time on Reddit. And, the longer they’ve been active on Reddit, the longer their individual sessions become.

  • New user: 20 minutes/day
  • 5-year user: 35 minutes/day
  • 7-year user: 45 minutes/day

7. Reddit is pivoting towards video

Reddit is increasingly seeing video usage as the TikTok-ization of social and algorithmic media continues, and that should create a video advertising opportunity on the platform.

“In December 2023, we experienced approximately 35% growth in the number of videos watched for 10 seconds or more and an approximately 16% increase in daily active video viewers compared to December 2022.”

Currently, there are no pre-roll or mid-roll ads in videos on Reddit. 

Expect that to change in 2024 or 2025.

8. Using AI to boosting engagement

Reddit is using AI to understand what drives user engagement and to re-engineer what posts it shows. 

The result: almost a third more engagement.

“We re-trained our New Home Feed ranking with significantly more data and user signals. In the three months ended December 31, 2023 compared to the three months ended June 30, 2023, we observed an increase of over 30% in “Good Visits,” defined as a user consuming a post for more than 30 seconds.”

9. Reddit has a relatively unique audience

Some advertising channels provide the opportunity to connect with people you can also easily get via other networks, and are therefore less valuable. In contrast, Reddit thinks it’s a fairly unique platform for finding prospects, customers, or users that you can’t get elsewhere.

When the company looked at Reddit users’ participation on other social networks:

  • 32% were not active on Facebook
  • 37% were not active on Instagram
  • 73% were not active on Snapchat
  • 41% were not active on TikTok
  • 53% were not active on X

Some of those stats are likely easy to achieve for other networks, such as the one about X, or former Twitter. But the Reddit audience is definitely different than the TikTok or Snapchat audience.

10. Reddit has a lot of first-party data

Like most major platforms, Reddit enjoys a huge trove of first-party content. Redditors accessing that content build a massive amount of first-party data about likes, interests, preferences, and more.

  • 100,000 subreddits
  • 500 subreddits with more than 1 million members
  • Over 1 billion posts
  • Over 16 billion comments

That offers a significant opportunity in the era of privacy …

Reddit says it is a privacy-first platform, unlike other social networks that tracks user activity all over the web or mobile apps.

“The foundation of our ad performance is based on context and interest instead of tracking users based on personally identifiable information. This is unique in the digital advertising marketplace; our lack of reliance on third-party data makes our offering more resilient to the loss of signal that other platforms rely upon as well as forthcoming changes to the internet ecosystem.”

The pitch to advertisers here is that Reddit’s trove of first-party data will allow it to target well, and that ability won’t degrade due to the changing privacy landscape.

12. Multiple possible advertiser objectives

For current advertising opportunities, Reddit says advertisers can aim for multiple objectives in ad campaigns:

  • Video view reach
  • View view impressions
  • Specific down-stream actions
    • App installs
    • Midstream clicks
    • Conversions

All of that is fairly standard. But more is coming …

13. New ad types coming on Reddit

Reddit currently only offers ad placements in the standard feed. Potential new ad placements in the post-IPO period that the company is already looking at include:

  • Ads in comment threads
  • Ads in search results
  • Ads in videos

This is interesting. As a long-time Reddit user, I know that a significant percentage of user time is spent in comments. Being able to monetize that better would be big. Also, Reddit is looking to create uniquely Reddit-type ads, which could be interesting:

“We plan to expand our ad formats in ways that allow advertisers to creatively talk to communities and share more information (e.g., product-level creative; games).”

14. New ad measurement capabilities coming

To boost ARPU, Reddit needs a better and more optimizable ad experience. To do that, Reddit needs to boost measurability of the ads on its platform.

Things Reddit is looking at include:

  • More tools for conversion tracking
    • Including a Conversion API
  • On-property-brand and conversion-lift testing
  • More measurement pixel, toolkit adoption, and data capture options

Getting a Conversion API is a big deal as third-party cookies go away and ATT/Privacy Sandbox dominates mobile. It’s increasingly popular for big platforms and big clients.

15. Better ad tools coming

Just like every other ad-funded platform, Reddit is looking to boost the quality and capability of the tools it provides for advertisers:

That probably includes automated optimization tools like Google App Campaigns and a decreased focus on manual optimization.

“Through easier onboarding, setup, campaign management, and optimization, we expect to scale our service model through diverse service channels matched to client needs – from managed service models, to hybrid, to enabling advertisers to activate with little to no sales team assistance (i.e., unmanaged). This simplifies core manual optimization tasks needed for more outcomes and better performance.”

We’ll have to see how this goes. TikTok in particular has demonstrated how improving ad tools year-by-year makes it easier for advertisers to spend on the platform. Can Reddit duplicate this feat?

16. Large client and agency focus

Every platform wants the biggest spenders. Reddit will need them post-IPO to grow …

“We are also deepening our relationships with large agencies through solutions that enable enterprise operations across large clients.”

17. More $$$

This one’s not in the Reddit prospectus, but one of the impacts of going public successfully is raising a significant amount of capital which can then be used to help grow the business. 

If Reddit deploys it to both grow its user base and its ad experiences and tooling, that could kickstart better opportunities for advertisers on the platform.

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