What's behind Reddit's gross profit jump in 2024?

Reddit's gross profit jumped significantly in 2024 due to several key factors:

1. Increased Advertising Revenue: Reddit's advertising revenue grew by 41% year-over-year to $253.1 million in Q2 2024, driven by higher impressions, more efficient ad placements, and expanded conversation placement ads. The company's continued focus on diversifying its advertising solutions and enhancing ad efficiency has emerged as a critical growth driver for its business. Additionally, Reddit introduced new advertising products in Q4 2024, including the AI-powered Headline Generator and Reddit Pro Trends, which helped businesses uncover real-time insights and grow organically on the platform.
2. User Growth and Engagement: Reddit saw considerable user growth, with daily active users reaching 101.7 million, a 39% year-over-year increase. This includes a 46% rise in international users and a 27% increase in logged-in users. The company's focus on improving the platform to drive user engagement has paid off, with total conversation page views increasing by 40% year-over-year.
3. Cost Management: Reddit's capital expenditure spending, or lack thereof, has been relatively low, with the company reporting that it "doesn't really have capex to speak of". This capital-efficient business model has allowed the company to maintain high incremental margins and profitability.
4. Data Licensing and Subscription Services: Reddit's revenue from data licensing and subscription services has also contributed to its overall growth. The company has secured deals with major tech firms for access to its vast database of user-generated content, which is valuable for training AI models. Additionally, Reddit's premium membership plan, Reddit Gold, which allows users to turn off ads and enjoy other benefits, has likely contributed to the company's revenue growth.

In summary, Reddit's gross profit jump in 2024 can be attributed to increased advertising revenue, user growth and engagement, effective cost management, and diversification into data licensing and subscription services.