What caused Reddit's revenue cost fluctuations in 2024?

Reddit's revenue and cost fluctuations in 2024 can be attributed to several key factors:

1. Revenue Growth Drivers: Reddit's revenue has seen significant growth, notably in the third quarter of 2024, with a 67.9% year-on-year increase to $348.4 million, surpassing market expectations. This growth is primarily driven by increased advertising revenues, which jumped 56% year-over-year to $315.1 million. The surge in ad revenues is attributed to increased user traffic and strong user engagement, as reflected by the 47% year-over-year increase in Daily Active Uniques (DAUq) to 97.2 million.
2. Cost Structure Analysis: Reddit's total expenses for 2024 were -$484.28 million, which includes various cost components such as stock-based compensation, infrastructure costs, and operational expenses. The company's cost structure is influenced by its continuous investments in expanding its user base and enhancing its platform features, including the introduction of new AI-powered features.
3. Quarterly Variations: Reddit's revenue and cost patterns show variations across different quarters. For instance, in the second quarter, Reddit reported solid results with sales increasing by 53.6% year-over-year to $281.2 million, beating expectations. This growth was driven by a 41% increase in ad revenues and significant user traffic growth. In contrast, the first quarter saw a slightly lower revenue growth rate, but the company still reported a 48% year-over-year increase in sales.
4. Financial Performance Metrics: Reddit's financial performance has been bolstered by strong earnings per share (EPS) and a significant beat in earnings expectations, with a GAAP profit of $0.16 per share in Q3 CY2024, compared to analysts’ consensus estimates of -$0.07. The company's free cash flow was also positive at $27.2 million in Q2 2024.
5. Market Conditions and Strategies: Reddit's revenue growth is also influenced by broader market conditions and the company's strategic initiatives. The U.S. stock market's strong performance and the optimism surrounding AI technology have likely contributed to Reddit's advertising growth. Additionally, Reddit's partnerships, such as with OpenAI and Google, have led to new revenue streams, with other revenues surging 547% year-over-year to $33.2 million.

In summary, Reddit's revenue growth in 2024 is primarily driven by increased advertising revenues, particularly from strong user growth and targeted advertising efforts. Cost fluctuations are influenced by strategic investments, stock-based compensation, and operational expenses. The company's financial performance is bolstered by strong EPS and positive free cash flow, despite significant expenses.