Reddit goes ‘mainstream,’ posts first profitable quarter

Reddit (RDDT) shares climb after the company’s third quarter results beat analyst estimates and showed the company reached profitability. Yahoo Finance Executive Editor Brian Sozzi sits down with Reddit CEO Steve Huffman to discuss the results.

“The story with Reddit is pretty simple. Yes, we're very proud of the quarter we just put up, but really at the end of the day, our strategy for the last couple of years has been to make Reddit better, faster, safer, easier to use, and that drives growth. And then growth, in turn, means more reach for advertisers,” Huffman tells Yahoo Finance.

The CEO says, “One of the most important things to understand about Reddit is it's a simple platform. Communities and conversations. It's a simple business model … We connect companies with their customers in an environment where they're probably talking about relevant products and decisions.”

“What's unique about Reddit, beyond the consumer product, which itself I think is unique, really as the most human place on the internet, but what's unique about the business is that it's very simple with such high gross margins and our ability to grow the business with modest cost growth.”

Huffman says that as a platform, Reddit has entered “an era of mainstream” by making the product easier to use. He notes, “One of our focuses next year will be search, which is a nice opportunity because it's one of the few opportunities that can both make the experience for new users better, help them find their home on Reddit more efficiently, but it makes the core experience for core users even better … And then down the road, it's also a monetization opportunity.”

Reddit has signed deals with ChatGPT maker OpenAI and Alphabet’s (GOOG, GOOGL) Google to license its content to train artificial intelligence (AI) models. Huffman says, “At the end of the day, what consumers on the internet want, and also what companies training large foundation models want, is Reddit's content.” He explains that Reddit’s willingness to do commercial deals reflects its belief in openness.

As AI technology evolves so does the conversation around regulation. Huffman says, “The first thing I would ground that conversation is this technology is incredibly important for humanity, and it will create a tremendous amount of opportunity and eventually wealth for everybody … Then the regulations that we would advocate for are around transparency.”

To watch more expert insights and analysis on the latest market action, check out more Market Domination here.

This post was written by Naomi Buchanan.

Video Transcript

Reddit is profitable for the first time ever.

The company reporting better than expected third quarter earnings across the board profit revenue and daily active uniques.

Reddit's fourth quarter revenue guides also blowing past A's expectations.

Join me now discuss those results is Steve Huffman, Reddit, co founder and Ceo Steve.

I just, I remember when he went public, I mean, it's lifetimes ago now you're making money signing big deals.

Thanks for uh hopping on Yahoo Finance.

I'm sure you're really proud of the quarter.

I mean, what should the investor takeaway be here, sir?

Um Brian, good morning.

It's happy to or I'm happy to be here.

Um Look, I think that the the story with Reddit is, is pretty simple.

Um Yes, we're very proud of the the quarter we just put up.

Um But really at the end of the day, our strategy for the last couple of years has been to make Reddit better, faster, safer, easier to use and that drives growth and then growth in turn means more reach for advertisers.

And I think one of the most important things to understand about Reddit is, look, it's a simple platform, communities and conversations it's a simple business model.

We connect companies uh and pretty much every company's customers are on reddit somewhere.

Um We connect companies with their customers in an environment where they're probably talking about um relevant products and, and, and decisions and then the business itself is very simple.

We have very high gross margins 90%.

Um Now we finally achieved this milestone of gap profitability and I think we'll start throwing off more and more cash as we look to the future.

So it's, it's a simple company, it's very fun to work on.

But if I was an investor, that's what I'd want to understand is are investors getting a taste of what a more mainstream reddit could mean to the top and bottom lines?

Yes.

Um What's what's unique about Reddit um uh beyond the consumer product, which itself I think is, is unique really as the most human place on the internet.

But what's unique about the business is that it's very simple um with such high gross margins um and our ability to grow the business with uh with modest cost growth.

So over the last year, we've grown revenue 4 to 5 times faster than costs.

It just means all that revenue that cash, most of it just flows to the bottom line.

And so that's how we've been able to get to profitability so fast.

And I think as we continue to scale, you see more and more of that, it's so and we've talked about this in the past, but it sounds like you're getting ready to enter a new wave of growth or I'm not quite entirely sure to characterize it, but reboot the search uh business on, on, on a red like what are you doing over the next 12 months that will add even more power or half to the business of Search for Reddit?

Sure.

So there's kind of two things happening um in, in the kind of core Reddit product, I think we're hitting a level of kind of an era of mainstream for Reddit.

We finally made the product easy enough to use that.

Uh I think we're, we're, we're hitting this tier of, of, of mainstream this.

And so that's been really encouraging to see because communities are universal.

Now, one of our focuses next year will be search which is um uh AAA nice opportunity because it's one of the few opportunities that can both make the experience for new users better, right?

Help them find their home on Reddit more efficiently, but it makes the core experience or the experience for core users even better, right?

Help them navigate reddit and find answers to their questions.

And then down the road, it's also a monetization opportunity.

And so it's one of the things that kind of hits uh every uh uh everything we care about new users, core users and growing the business.

What do you think about these LL MS or large language models, uh, scraping sites like Reddit, you know, I look at the work we do here at Yahoo.

Finance is very timely.

So, maybe it's a little different than some of the stuff that you would do at Reddit.

But I imagine, I mean, they're essentially, I mean, they're taking your content.

I know you have deals like open A I and Google, but I mean, they're taking your content for free.

Well, look, we have done uh a couple of deals there with Google and open A I.

But at the end of the day, what uh consumers on the internet want and also what um companies training large foundation models want is Reddit's content.

Uh and reddit look, we're open and open for business now the, the, the way our content get out there or gets out there.

Um We have to be much more considered about than uh than we have in the past.

Um But look, we make our da data available for free to researchers and nonprofits, but then commercial use of reddit's content requires a commercial agreement and requires companies to abide by our uh public data policy which really exists to protect user privacy.

Um But look, we're in the market, we're talking to everybody, we've done a couple of deals.

Um We're working on others.

Um But I do think it's better for Reddit to be out there than not, right?

All of our other peers uh in this space are closed off and that's really not where Reddits come from.

You know, we believe in the web, uh we believe in openness.

Um And so as long as we can kind of uh do these deals or, or make these arrangements on terms that are, I think, fair to our user base and fair to our business, uh We'll do our best to do so.

And so that's a work in progress right now, but we're making progress, steve whoever, whoever wins the White House Trump or Harris.

Theoretically, this is going to be the administration that does something about A I regulation, maybe, you know, as a leader, uh really a key leader in this industry over many, many years, I if you were talking to whoever would win the White House, what would you tell them about A I regulation?

You know, what, what would be fair to a Reddit and what would be fair to civilization?

Sure.

So I think the first thing I would ground that conversation is, is this technology is incredibly important for humanity and it will create a tremendous amount of opportunity and eventually wealth for everybody.

Um It's, it's a really powerful technology.

We want to make sure as many people have access to it as possible.

So I think we have to be very considered in what the regulations are and then the regulations that we would advocate for are around transparency.

Um So for example, where are these models getting their data.

What are the weights between the various data sources and how are they used?

I think that's the sort of thing that is really important for the broader public to know, um, when engaging with any of these models.

All right, we'll leave it there.

Uh Reddick co founder and Ceo Steve Huffman.

Always nice to get some time with you.

We'll talk to you soon.

Good to see those profits.

Thanks Brian.

I appreciate it.