Reddit, Inc. (RDDT) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors” and “Note Regarding Forward-Looking Statements.”
The following discusses financial conditions and results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023. Discussion of financial conditions and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2023 included in our Prospectus filed with the SEC on March 21, 2024.
Highlights of 2024 Results
User Metrics
•Daily Active Uniques (“DAUq”) were 101.7 million for the three months ended December 31, 2024, an increase of 39% year over year
•Average revenue per unique (“ARPU”) was $4.21 for the three months ended December 31, 2024, an increase of 23% year over year
Financial Results
•Revenue was $1.3 billion for the year ended December 31, 2024, an increase of 62% year over year
•Gross margin was 90.5% for the year ended December 31, 2024, as compared to 86.2% in the year ended December 31, 2023
•Operating expenses were $1.7 billion for the year ended December 31, 2024, as compared to $833.2 million in the year ended December 31, 2023
•Net loss was $484.3 million for the year ended December 31, 2024, as compared to $90.8 million in the year ended December 31, 2023
•Adjusted EBITDA was $298.0 million for the year ended December 31, 2024, as compared to $(69.3) million in the year ended December 31, 2023
•Net cash provided by (used in) operating activities was $222.1 million for the year ended December 31, 2024, as compared to $(75.1) million in the year ended December 31, 2023
•Free Cash Flow was $215.8 million for the year ended December 31, 2024, as compared to $(84.8) million in the year ended December 31, 2023
•Cash, cash equivalents, and marketable securities were $1.8 billion as of December 31, 2024
Business and Macroeconomic Conditions
In recent years, the global economy and other macroeconomic conditions, including concerns related to inflation and rising interest rates and geopolitical risks, have resulted in uncertainty in the advertising market and have impacted brands’ and agencies’ ability and willingness to invest in advertising. We expect that these macroeconomic conditions may continue to impact revenue growth in the near term, although we are unable to predict the duration or degree of such volatility with any certainty.
Since the continuing impact of these macroeconomic conditions on our results of operations and overall financial performance remains highly unpredictable, our past results may not be indicative of our future performance. Given the uncertainty, we are unable to predict the extent and duration of the impact of these conditions on our employees, users, and advertisers, or our business, results of operations, and financial condition.
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For more information about the factors potentially impacting our performance, see “Risk Factors” elsewhere in this Annual Report on Form 10-K.
Key Financial and Operating Metrics
We review a number of metrics, including the key metrics discussed below, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
User Metrics
Daily Active Unique. We define a daily active unique (“DAUq”) as a user whom we can identify with a unique identifier who has visited a page on the Reddit website, www.reddit.com, or opened a Reddit application at least once during a 24-hour period. We calculate average DAUq for a particular period by adding the number of DAUq on each day of that period and dividing that sum by the number of days in that period. DAUq is shown globally and also broken out by the United States and the rest of the world because these markets have different characteristics. Most notably, we are more advanced in engagement and monetization in the United States than in the rest of the world. We measure DAUq because we believe that this metric helps management and investors understand usage of and engagement with our platform. DAUq is the primary metric by which we measure the scale of our active user base.
DAUq includes visits from those who have logged in to a registered account as well as those who have not logged in to—or do not have—a registered account. Visitors that come to Reddit from search engines are generally not logged in and originate from both desktop and mobile web. Currently, monetization of these users is mainly through conversation pages and feed ads. Measuring the number of logged-out visitors is difficult and complex. For example, prior to the first quarter of 2023, a portion of our historical DAUq metric counted views of pages that were hosted using Google’s Accelerated Mobile Page (“AMP”) framework. The accuracy of counting the DAUq attributable to this AMP traffic relied on the accuracy and completeness of information received from Google, which had not been historically complete and consistent. As such, our historical DAUq metrics are not directly comparable quarter over quarter or year over year. To the extent that our metric includes views of pages hosted on third-party infrastructure, like Google’s AMP framework, the accuracy and comparability of our metrics will depend on the accuracy and consistency of the information received from any such third party.
In addition, we monitor logged-in DAUq, which we define as a user whom we can identify with a unique identifier who has visited a page on the Reddit website, www.reddit.com, or opened a Reddit application at least once during a 24-hour period and was logged in to a registered account. We measure logged-in DAUq because these users tend to have higher engagement and spend more time on our platform compared to users who are not logged in to a registered account.
Weekly Active Unique. We define a weekly active unique (“WAUq”) as a user whom we can identify with a unique identifier who has visited a page on the Reddit website, www.reddit.com, or opened a Reddit application at least once during a trailing seven-day period. We calculate average quarterly WAUq for a particular period by adding the number of WAUq on each day of that period and dividing that sum by the number of days in that period. We measure WAUq because we believe that this metric helps management and investors understand the reach of our platform.
During the three months ended December 31, 2023 and 2022, we deployed further advances in our process used to identify and address activity by users and visitors, including web crawlers and scrapers. As we identify automated agents, we remove them from our DAUq and WAUq count prospectively and do not recalculate DAUq and WAUq for prior periods if we assess such impact to be immaterial. As we have continued to improve our capabilities to identify suspicious traffic, we have not seen this methodology materially impact trends in DAUq and WAUq from quarter to quarter.
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Trends in User Metrics
Quarterly Average DAUq
(in millions)
| Total DAUq YoY Growth: | 5% | 7% | 15% | 27% | 37% | 51% | 47% | 39% |
|---|---|---|---|---|---|---|---|---|
| Logged-in DAUq YoY Growth: | 13% | 14% | 19% | 21% | 27% | 31% | 27% | 27% |
| Total DAUq YoY Growth: | 6% | 9% | 19% | 34% | 45% | 59% | 51% | 32% | Total DAUq YoY Growth: | 4% | 5% | 12% | 21% | 30% | 44% | 44% | 46% |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Logged-in DAUq YoY Growth: | 12% | 12% | 16% | 20% | 27% | 32% | 29% | 24% | Logged-in DAUq YoY Growth: | 14% | 16% | 22% | 21% | 28% | 30% | 26% | 29% |
We assess both year over year and quarter over quarter growth of DAUq in each period.
In the three months ended December 31, 2024, global DAUq grew 39% compared to the prior year period, driven by 32% growth in DAUq in the United States and 46% growth in DAUq in the rest of world. Global DAUq grew 5% compared to the prior quarter period, driven by 10% growth in DAUq in the rest of world while DAUq in the United States remained flat. The growth in global DAUq in the three months ended December 31, 2024 compared to the prior year period and prior quarter period was driven by the combination of third-party search engine and algorithm changes, traction in our growth strategies, particularly in machine translation, and product enhancements.
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Quarterly Average WAUq
(in millions)
| WAUq YoY Growth: | 2% | 5% | 15% | 29% | 40% | 57% | 53% | 42% |
|---|---|---|---|---|---|---|---|---|
| DAUq/WAUq: | 28% | 28% | 28% | 27% | 27% | 27% | 27% | 27% |
| Column 1 | Column 2 | Column 3 | Column 4 | Column 5 | Column 6 | Column 7 | Column 8 | Column 9 | Column 10 | Column 11 | Column 12 | Column 13 | Column 14 | Column 15 | Column 16 | Column 17 | Column 18 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| WAUq YoY Growth: | 4% | 9% | 21% | 39% | 53% | 68% | 58% | 31% | WAUq YoY Growth: | 1% | 1% | 9% | 20% | 30% | 48% | 48% | 52% |
In the three months ended December 31, 2024, global WAUq grew 42% compared to the prior year period, driven by 31% growth in WAUq in the United States and 52% growth in WAUq in the rest of world. In the three months ended December 31, 2024, global WAUq increased 4% compared to the prior quarter period, driven by 11% growth in WAUq in the rest of world, partially offset by a 3% decline in WAUq in the United States. For the three months ended December 31, 2024, the proportion of DAUq to WAUq was 27%.
User Growth and Engagement
The absolute number of DAUq is a critical component to our business because it influences our advertising inventory as well as our infrastructure expenses.
We believe we have the opportunity to continue to grow our DAUq in the United States and around the world. Growth in DAUq depends on our ability to attract new users and retain existing users. We aim to increase DAUq by scaling internationally, improving discovery and the user experience, elevating conversations and video, modernizing search, and providing customized content recommendations. We believe we can grow engagement and convert more WAUq into DAUq by making it easier for new and existing Redditors to discover relevant communities and content. We believe we can convert logged-out DAUq into logged-in DAUq by making the user experience, including search, simpler and more personalized to further increase engagement and retention. Growth in DAUq is also impacted by external factors such as worldwide events,
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cultural trends, the global economy, and actions by external parties such as changes in internet search engine algorithms and dynamics.
Monetization
We generate a majority of our revenue through the sale of advertising on our mobile applications and website. We built our advertising business by focusing on top U.S.-based advertisers, and over time we have expanded our focus towards mid-sized and smaller advertisers, as well as international advertisers. The pricing of our advertising products is affected by our technological investments as well as other factors, including the global economy and the highly competitive nature of our industry.
We also generate revenue from content licensing, Reddit Premium subscriptions, and products within our user economy. We are in the early stages of monetization from content licensing and expect our growing data advantage to continue to be valuable across several applications of LLMs (e.g., search, run-time inference). We also intend to open additional monetization channels for Reddit by providing our users and creators with the requisite tools and incentives to drive continued creation, improvements, and commerce.
Trends in Monetization Metrics
In the year ended December 31, 2024, we recorded revenue of $1.3 billion, as compared to revenue of $804.0 million for the year ended December 31, 2023, representing an increase of 62% compared to the prior year period.
ARPU. We define average revenue per unique (“ARPU”) as quarterly revenue in a given geography divided by the average DAUq in that geography. For the purposes of calculating ARPU, advertising revenue in a given geography is based on the geographic location in which advertising impressions are delivered, as this approximates revenue based on user activity, while other revenue in a given geography is based on the billing address of the customer. This differs from the presentation of our revenue by geography in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, where both advertising revenue and other revenue are based on the billing address of the customer.
We present ARPU globally and also broken out on a United States and rest of world basis because we currently monetize users in the United States and the rest of the world at different rates. We measure ARPU because we believe that this metric helps our management and investors assess the extent to which we are monetizing our DAUq. Monetization of new users is generally at a lower rate than existing users and as such, ARPU tends to grow at a lower rate than revenue in periods of strong DAUq growth. Currently, logged-out users tend to have lower engagement and spend less time on our platform compared to users who are logged in to a registered account, and therefore, logged-in users generally contribute significantly more to ARPU than logged-out users. Our ARPU reflects the seasonality of our advertising revenue, with the fourth quarter typically being the strongest quarter of each year, especially in the United States, our most developed geography. United States ARPU is higher primarily due to the relative size and maturity of the U.S. digital advertising market, a dynamic we expect will continue for the foreseeable future.
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Quarterly ARPU
(in dollars)
| YoY Growth: | 7% | 15% | 5% | (2)% | 8% | 2% | 14% | 23% |
|---|---|---|---|---|---|---|---|---|
| QoQ Growth: | (22)% | 11% | 4% | 9% | (14)% | 5% | 16% | 18% |
| YoY Growth: | 5% | 15% | —% | (7)% | 3% | (5)% | 12% | 28% | YOY Growth: | 12% | 9% | 16% | 3% | 10% | 17% | 16% | 25% | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| QoQ Growth: | (22)% | 13% | 1% | 5% | (13)% | 4% | 19% | 20% | QoQ Growth: | (23)% | 6% | 8% | 18% | (18)% | 13% | 6% | 27% |
During the three months ended December 31, 2024, ARPU was $4.21, an increase of 23% compared to $3.42 for the prior year period, United States ARPU was $7.04, compared to $5.51 for the prior year period, and rest of world ARPU was $1.67, compared to $1.34 for the prior year period. The increase in global ARPU compared to the prior year period was due primarily to an increase in advertising revenue driven by an increase in impressions delivered, and to a lesser extent, an increase in content licensing revenue. The increase in global ARPU compared to the prior quarter period was due primarily to an increase in advertising revenue driven by an increase in impressions delivered, and to a lesser extent, an increase in pricing.
Non-GAAP Financial Measures
We use certain non-GAAP financial measures to supplement our consolidated financial statements, which are presented in accordance with U.S. GAAP, to evaluate our core operating performance. These non-GAAP financial measures include Adjusted EBITDA and Free Cash Flow. We use these non-GAAP financial measures to facilitate reviews of our operational performance and as a basis for strategic planning. By excluding certain items that are non-recurring or not reflective of the performance of our normal course of business, we believe that Adjusted EBITDA and Free Cash Flow provide meaningful supplemental information regarding our performance. Accordingly, we believe these non-GAAP financial measures are useful to investors and others because they allow investors to supplement their understanding of our financial trends and evaluate our ongoing and future performance in the same manner as management. However, there are a number of limitations related to the
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use of non-GAAP financial measures as they reflect the exercise of judgment by our management about which expenses are included or excluded in determining these non-GAAP measures. These non-GAAP measures should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with U.S. GAAP. Other companies, including companies in our industry, may calculate these non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures.
Adjusted EBITDA
Adjusted EBITDA is defined as net income (loss) excluding interest (income) expense, net, income tax expense (benefit), depreciation and amortization, stock-based compensation expense and related taxes, other (income) expense, net, and certain other non-recurring or non-cash items impacting net income (loss) that we do not consider indicative of our ongoing business performance. Other (income) expense, net consists primarily of realized gains and losses on sales of marketable securities, foreign currency transaction gains and losses, and other income and expense that are not indicative of our core operating performance. We consider the exclusion of certain non-recurring or non-cash items in calculating Adjusted EBITDA to provide a useful measure for investors and others to evaluate our operating results in the same manner as management.
The following table presents a reconciliation of our net income (loss), the most directly comparable financial measure presented in accordance with U.S. GAAP, to Adjusted EBITDA:
| Year ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||
| (in thousands) | ||||||||||
| Reconciliation of Adjusted EBITDA: | ||||||||||
| Net income (loss) | $ | (484,276) | $ | (90,824) | $ | (158,550) | ||||
| Add (deduct): | ||||||||||
| Interest (income) expense, net | (78,121) | (53,281) | (15,681) | |||||||
| Income tax expense (benefit) | (931) | 3,801 | 622 | |||||||
| Depreciation and amortization(1) | 15,643 | 13,702 | 8,000 | |||||||
| Stock-based compensation expense and related taxes(2) | 842,932 | 49,086 | 55,768 | |||||||
| Restructuring costs(3) | — | 8,098 | — | |||||||
| Other (income) expense, net | 2,760 | 143 | 1,448 | |||||||
| Adjusted EBITDA | $ | 298,007 | $ | (69,275) | $ | (108,393) |
________________
(1)Includes depreciation and amortization as follows:
| Year ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||
| (in thousands) | ||||||||||
| Cost of revenue | $ | — | $ | 152 | $ | 714 | ||||
| Research and development | 9,520 | 8,001 | 4,687 | |||||||
| Sales and marketing | 4,847 | 4,340 | 1,768 | |||||||
| General and administrative | 1,276 | 1,209 | 831 | |||||||
| Depreciation and amortization | $ | 15,643 | $ | 13,702 | $ | 8,000 |
(2)Includes stock-based compensation expense and related taxes as follows:
| Year ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||
| (in thousands) | ||||||||||
| Cost of revenue | $ | 620 | $ | 101 | $ | 133 | ||||
| Research and development | 464,858 | 24,334 | 35,917 | |||||||
| Sales and marketing | 87,445 | 5,678 | 7,678 | |||||||
| General and administrative | 290,009 | 18,973 | 12,040 | |||||||
| Stock-based compensation expense and related taxes | $ | 842,932 | $ | 49,086 | $ | 55,768 |
(3)During the year ended December 31, 2023, we incurred restructuring costs of $8.1 million, primarily composed of severance and benefits expense. These charges are non-recurring and are not reflective of underlying trends in our business.
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Free Cash Flow
Free Cash Flow represents net cash provided by (used in) operating activities less purchases of property and equipment. We believe that Free Cash Flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth. Additionally, we believe that Free Cash Flow is an important measure since we use third-party infrastructure partners to host our services and therefore we do not incur significant capital expenditures to support revenue generating activities.
The following table presents a reconciliation of net cash provided by (used in) operating activities, the most directly comparable financial measure calculated in accordance with U.S. GAAP, to Free Cash Flow:
| Year ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||
| (in thousands) | ||||||||||
| Reconciliation of Free Cash Flow: | ||||||||||
| Net cash provided by (used in) operating activities | $ | 222,068 | $ | (75,114) | $ | (94,021) | ||||
| Less: | ||||||||||
| Purchases of property and equipment | (6,248) | (9,724) | (6,233) | |||||||
| Free Cash Flow | $ | 215,820 | $ | (84,838) | $ | (100,254) |
Results of Operations
The following table summarizes our historical consolidated statements of operations data for the periods indicated:
| Year ended December 31, | 2024 vs. 2023 | 2023 vs. 2022 | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | $ Change | % Change | $ Change | % Change | |||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||||
| Revenue | $ | 1,300,205 | $ | 804,029 | $ | 666,701 | $ | 496,176 | 62 | % | $ | 137,328 | 21 | % | |||||||||||
| Net income (loss) | (484,276) | (90,824) | (158,550) | (393,452) | NM | 67,726 | (43) | % | |||||||||||||||||
| Adjusted EBITDA(1) | 298,007 | (69,275) | (108,393) | 367,282 | NM | 39,118 | (36) | % |
_________________
NM - Not meaningful
(1)See “Non-GAAP Financial Measures—Adjusted EBITDA” for more information and for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
Components of Results of Operations
Revenue
We generate a majority of our revenue through the sale of advertising on our mobile applications and website. We recognize revenue only after transferring control of promised goods or services to customers, which occurs when a user clicks on an ad contracted on a cost per click (“CPC”) basis, views an ad contracted on a cost per thousand impressions (“CPM”) basis, views a video ad contracted on a cost per view (“CPV”) basis, or on a fixed fee basis, based upon ad delivery over the service period, which is typically less than 30 days in duration.
We also generate revenue from content licensing, Reddit Premium subscriptions, and products within our user economy. In our content licensing arrangements, we provide customers with the right to access content from our platform over the contractual period. We recognize content licensing revenue as our content partners consume and benefit from their use of the licensed content, which is generally ratably over the license period. We recognize Reddit Premium subscription revenue ratably over the subscription period, which is generally less than one year. Products within our user economy include Reddit Gold and Collectible Avatars. Revenue from Reddit Gold and Collectible Avatars was not material for the years ended December 31, 2024, 2023, and 2022.
Cost of Revenue
Cost of revenue consists primarily of payments to third parties for the cost of hosting and supporting our mobile applications and website. In addition, cost of revenue includes expenses directly associated with the delivery of our advertising and other services, including advertising measurement services and credit card and other transaction processing fees. Cost of revenue also consists of employee-related costs, including salaries, benefits, and stock-based compensation.
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Research and Development Expenses
Research and development expenses consist primarily of employee-related costs including salaries, benefits, and stock-based compensation for engineers and other employees engaged in the research, design, and development of new and existing products. Research and development expenses also include professional services and hosting costs associated with internal research and development activities, as well as allocated facilities and other supporting overhead costs.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of employee-related costs including salaries, benefits, and stock-based compensation for employees engaged in sales, sales support, business and brand development, marketing, and customer service functions. Sales commissions are expensed as incurred in sales and marketing expenses as the expected period of benefit is one year or less. Sales and marketing expenses also include costs incurred for advertising, market research, branding, professional services, marketing, and promotional expenditures, as well as allocated facilities and other supporting overhead costs.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related costs including salaries, benefits, and stock-based compensation for certain executives as well as employees engaged in finance, legal, human resources, information technology, communications, and other administrative teams. General and administrative expenses also include costs incurred for professional services, as well as allocated facilities and other supporting overhead costs.
Other Income (Expense), Net
Other income (expense), net, consists primarily of interest income, interest expense, realized gains and losses on sales of marketable securities, and foreign currency transaction gains and losses.
Income Tax Expense (Benefit)
We are subject to income taxes in the United States and foreign jurisdictions. Our income tax provision represents the income tax expense or benefit associated with our operations based on the tax laws of the jurisdictions in which we operate. The foreign jurisdictions where we operate have different statutory tax rates than the United States. Additionally, certain of our foreign earnings may also be taxable in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to domestic income, use of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws.
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Discussion of Results of Operations
The following table sets forth our consolidated statements of operations data for the periods indicated:
| Year ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||
| (in thousands) | ||||||||||
| Consolidated Statements of Operations Data: | ||||||||||
| Revenue | $ | 1,300,205 | $ | 804,029 | $ | 666,701 | ||||
| Costs and expenses: | ||||||||||
| Cost of revenue | 123,595 | 111,011 | 104,799 | |||||||
| Research and development | 935,152 | 438,346 | 365,164 | |||||||
| Sales and marketing | 350,579 | 230,175 | 225,078 | |||||||
| General and administrative | 451,447 | 164,658 | 143,822 | |||||||
| Total costs and expenses | 1,860,773 | 944,190 | 838,863 | |||||||
| Income (loss) from operations | (560,568) | (140,161) | (172,162) | |||||||
| Other income (expense), net | 75,361 | 53,138 | 14,234 | |||||||
| Income (loss) before income taxes | (485,207) | (87,023) | (157,928) | |||||||
| Income tax expense (benefit) | (931) | 3,801 | 622 | |||||||
| Net income (loss) | $ | (484,276) | $ | (90,824) | $ | (158,550) | ||||
| Adjusted EBITDA(1) | $ | 298,007 | $ | (69,275) | $ | (108,393) | ||||
| Net cash provided by (used in) operating activities | $ | 222,068 | $ | (75,114) | $ | (94,021) | ||||
| Free Cash Flow(2) | $ | 215,820 | $ | (84,838) | $ | (100,254) |
_________________
(1)See “Non-GAAP Financial Measures—Adjusted EBITDA” for more information and for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
(2)See “Non-GAAP Financial Measures—Free Cash Flow” for more information and for a reconciliation of Free Cash Flow to net cash provided by (used in) operating activities, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated:
| Year ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||
| Consolidated Statements of Operations Data: | ||||||||
| Revenue | 100 | % | 100 | % | 100 | % | ||
| Costs and expenses: | ||||||||
| Cost of revenue | 10 | 14 | 16 | |||||
| Research and development | 72 | 55 | 55 | |||||
| Sales and marketing | 27 | 29 | 34 | |||||
| General and administrative | 35 | 20 | 22 | |||||
| Total costs and expenses | 144 | 118 | 127 | |||||
| Income (loss) from operations | (44) | (18) | (27) | |||||
| Other income (expense), net | 6 | 7 | 2 | |||||
| Income (loss) before income taxes | (38) | (11) | (25) | |||||
| Income tax expense (benefit) | 0 | 0 | 0 | |||||
| Net income (loss) | (38) | % | (11) | % | (25) | % |
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Comparison of the Years Ended December 31, 2024 and 2023
Revenue
| Year ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | $ Change | % Change | |||||||||||
| (in thousands, except percentages) | ||||||||||||||
| Revenue | $ | 1,300,205 | $ | 804,029 | $ | 496,176 | 62 | % |
Revenue for the year ended December 31, 2024 increased by $496.2 million, or 62%, compared to the prior year. The growth in revenue was due primarily to an increase in advertising revenue driven mainly by an increase in impressions delivered. In addition, other revenues increased as a result of content licensing agreements executed in 2024.
Cost of Revenue
| Year ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | $ Change | % Change | |||||||||||
| (in thousands, except percentages) | ||||||||||||||
| Cost of revenue | $ | 123,595 | $ | 111,011 | $ | 12,584 | 11 | % |
Cost of revenue for the year ended December 31, 2024 increased by $12.6 million, or 11%, compared to the prior year. The increase in cost of revenue was primarily attributable to increased hosting usage to support user growth on our platform and an increase in advertising measurement and other services, partially offset by lower hosting prices and hosting cost efficiencies.
Research and Development Expenses
| Year ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | $ Change | % Change | |||||||||||
| (in thousands, except percentages) | ||||||||||||||
| Research and development | $ | 935,152 | $ | 438,346 | $ | 496,806 | 113 | % |
Research and development expenses for the year ended December 31, 2024 increased by $496.8 million, or 113%, compared to the prior year. The increase was driven primarily by higher stock-based compensation expense and related taxes, including the cumulative catch-up upon IPO of stock-based compensation expense and related taxes for RSUs with a liquidity-based vesting condition and an increase in other employee-related costs.
Sales and Marketing Expenses
| Year ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | $ Change | % Change | |||||||||||
| (in thousands, except percentages) | ||||||||||||||
| Sales and marketing | $ | 350,579 | $ | 230,175 | $ | 120,404 | 52 | % |
Sales and marketing expenses for the year ended December 31, 2024 increased by $120.4 million, or 52%, compared to the prior year. The increase was driven primarily by higher stock-based compensation expense and related taxes, including the cumulative catch-up upon IPO of stock-based compensation expense and related taxes for RSUs with a liquidity-based vesting condition and an increase in other employee-related costs.
General and Administrative Expenses
| Year ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | $ Change | % Change | |||||||||||
| (in thousands, except percentages) | ||||||||||||||
| General and administrative | $ | 451,447 | $ | 164,658 | $ | 286,789 | 174 | % |
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General and administrative expenses for the year ended December 31, 2024 increased by $286.8 million, or 174%, compared to the prior year. The increase was driven primarily by higher stock-based compensation expense and related taxes, including the cumulative catch-up upon IPO of stock-based compensation expense and related taxes for RSUs with a liquidity-based vesting condition.
Other Income (Expense), Net
| Year ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | $ Change | % Change | |||||||||||
| (in thousands, except percentages) | ||||||||||||||
| Other income (expense), net | $ | 75,361 | $ | 53,138 | $ | 22,223 | 42 | % |
Other income (expense), net for the year ended December 31, 2024 increased by $22.2 million, or 42%, compared to the prior year. The increase was primarily due to higher interest earned on our cash and investments driven by a higher invested balance and higher interest rates.
Income Tax Expense (Benefit)
| Year ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | $ Change | % Change | |||||||||||
| (in thousands, except percentages) | ||||||||||||||
| Income tax expense (benefit) | $ | (931) | $ | 3,801 | $ | (4,732) | (124) | % |
Income tax expense (benefit) for the year ended December 31, 2024 decreased by $4.7 million, or 124%, compared to the prior year. The decrease in income tax expense was primarily attributable to a decrease in taxable income in the current period.
Liquidity and Capital Resources
We have historically financed our operations primarily through net proceeds from the sale of convertible preferred stock and payments received from our customers. Additionally, in March 2024, we completed our IPO, which resulted in net proceeds of $600.0 million after deducting underwriting discounts and commissions of $31.6 million. We began generating net positive operating cash flows in 2024. Our primary uses of cash are employee-related costs and the cost of hosting our mobile applications and website.
As of December 31, 2024, we had $1.8 billion in cash, cash equivalents, and marketable securities. Our cash and cash equivalents consist of cash in bank accounts, money market accounts, and other highly liquid investments with original maturities of 90 days or less from the date of purchase. Marketable securities consist of U.S. and non-U.S. government securities, investment-grade corporate and government agency securities, certificates of deposit, and commercial paper. As of December 31, 2024, approximately 2% of our cash, cash equivalents, and marketable securities was held outside of the United States.
On October 8, 2021, we entered into a five-year, $750.0 million, revolving loan and standby letter of credit facility agreement (“Revolving Credit Facility”) of which $100.0 million can be issued as letters of credit. As of December 31, 2024, we have issued two letters of credit, one of which is denominated in a foreign currency, for an aggregate of $4.9 million, which reduced the letter of credit borrowings available under the Revolving Credit Facility to $95.1 million. The aggregate available balance under the Revolving Credit Facility was $745.1 million as of December 31, 2024.
On May 23, 2023, we amended the terms of the Revolving Credit Facility to replace LIBOR with Term SOFR as the interest rate benchmark. Under the amended terms of the Revolving Credit Facility, borrowings can be either ABR Loans, Term Benchmark Loans, or SONIA Loans. Outstanding ABR Loans bear interest at a rate equal to the greatest of (A) the Prime Rate, (B) the NYFRB Rate plus 0.5%, (C) the Adjusted Term SOFR Rate plus 1.0%, or (D) 1.0% (each as defined in the amended Revolving Credit Facility), in each case plus 0.25%. Outstanding Term Benchmark Loans bear interest at the Adjusted Term SOFR Rate, the Adjusted EURIBOR Rate, or the Adjusted AUD Rate (each as defined in the amended Revolving Credit Facility), as applicable, in each case, plus 1.25%. Outstanding SONIA Loans bear interest at a rate equal to the Adjusted Daily Simple SONIA (as such term is defined in the amended Revolving Credit Facility) plus 1.25%. We are required to pay a quarterly commitment fee that accrues at 0.15% per annum on the unused portion of the aggregate commitments under the credit facility.
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The Revolving Credit Facility contains customary conditions on our borrowing, including events of default and covenants. Covenants include restrictions on our and certain of our subsidiaries’ ability to incur indebtedness, grant liens, make distributions to holders of our preferred and common stock, make investments, or engage in transactions with our affiliates, and require us to maintain a minimum liquidity. The obligations under the Revolving Credit Facility are secured by liens on substantially all of our assets, including intellectual property assets. We were in compliance with all covenants as of December 31, 2024.
We believe our cash flows from operations, existing cash, cash equivalents, and marketable securities, and amounts available under our Revolving Credit Facility will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and for the foreseeable future. We continuously evaluate our liquidity and capital resources, including our access to external capital, to ensure we can finance our future capital needs.
The following table summarizes our cash flows for the periods presented:
| Year ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||
| (in thousands) | ||||||||||
| Net cash provided by (used in) operating activities | $ | 222,068 | $ | (75,114) | $ | (94,021) | ||||
| Net cash provided by (used in) investing activities | (440,687) | 41,291 | (804,183) | |||||||
| Net cash provided by (used in) financing activities | 379,535 | (811) | (3,784) | |||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 160,916 | $ | (34,634) | $ | (901,988) | ||||
| Free Cash Flow | $ | 215,820 | $ | (84,838) | $ | (100,254) |
Operating Activities
Net cash provided by operating activities was $222.1 million in the year ended December 31, 2024, resulting primarily from adjustments for non-cash items, primarily related to stock-based compensation expense of $801.6 million, and an increase in accrued expenses and other liabilities of $59.3 million due to timing of payments. These increases were partially offset by net loss of $(484.3) million, an increase in accounts receivable of $104.3 million related to an increase in advertising revenue, and amortization of premium (accretion of discount) on marketable securities, net, of $(43.4) million. Net cash used in operating activities was $(75.1) million in the year ended December 31, 2023, resulting primarily from net loss of $(90.8) million, and an increase in accounts receivable of $53.3 million related to an increase in advertising revenue. These increases were partially offset by adjustments for non-cash items, primarily related to stock-based compensation expense of $47.6 million, and an increase in accounts payable and accrued expenses and other liabilities of $25.2 million due to timing of payments.
Investing Activities
Net cash used in investing activities was $(440.7) million in the year ended December 31, 2024, primarily due to additional purchases of marketable securities of $2.0 billion and cash paid for acquisitions, net of cash acquired of $17.1 million, partially offset by maturities of marketable securities of $1.6 billion. Net cash provided by investing activities was $41.3 million in the year ended December 31, 2023, primarily due to maturities and proceeds from the sale of marketable securities of $1.3 billion, partially offset by additional purchases of marketable securities.
Financing Activities
Net cash provided by financing activities was $379.5 million in the year ended December 31, 2024 and consisted primarily of cash proceeds from the issuance of Class A common stock in our IPO, net of underwriting discounts and commissions, of $600.0 million and proceeds from exercises of employee stock options of $89.0 million, partially offset by taxes paid related to net share settlement of restricted stock units of $294.6 million. Net cash used in financing activities was $(0.8) million in the year ended December 31, 2023 and consisted primarily of cash payments of $4.3 million for taxes paid related to net share settlement of restricted stock units and other financing activities of $4.9 million, partially offset by proceeds from exercises of employee stock options of $8.4 million.
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Free Cash Flow
Free Cash Flow was $215.8 million for the year ended December 31, 2024, and was composed of net cash provided by operating activities, resulting primarily from adjustments for non-cash items, partially offset by net loss and changes in working capital. Free Cash Flow was $(84.8) million for the year ended December 31, 2023, and was composed of net cash used in operating activities, resulting primarily from net loss, partially offset by adjustments for non-cash items and changes in working capital. Free Cash Flow also included purchases of property and equipment of $6.2 million and $9.7 million for the years ended December 31, 2024 and 2023, respectively. For the year ended December 31, 2024, the increase in Free Cash Flow as compared to the prior year was driven primarily by the increase in cash provided by operating activities.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of December 31, 2024:
| Total | Less than 1 Year | 1–3 Years | 3–5 Years | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | ||||||||||||||
| Operating leases | $ | 30,165 | $ | 7,509 | $ | 14,916 | $ | 7,740 | ||||||
| Purchase commitments | 336,978 | 173,662 | 163,313 | 3 | ||||||||||
| Total | $ | 367,143 | $ | 181,171 | $ | 178,229 | $ | 7,743 |
Under the terms of certain of our purchase commitments, we are contractually obligated to purchase specified minimums over the contract term. If we do not meet the specified minimums, we will have an obligation to pay the service provider any shortfall. Obligations and commitments presented above are before consideration of any credits that may be earned during the term.
See Note 7—Operating Leases and Note 11—Commitments and Contingencies of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional discussion on our operating leases and purchase commitments.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with U.S. GAAP. Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ significantly from these estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, results of operations, financial condition, and cash flows will be affected.
The critical accounting estimates, assumptions, and judgments that we believe to have the most significant impact on our consolidated financial statements are described below. Refer to Note 2—Basis of Presentation and Significant Accounting Policies of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information on our other significant accounting policies.
Revenue Recognition
We generate a majority of our revenue through the sale of advertising on our mobile applications and website. Other revenue consists of revenue from content licensing, Reddit Premium subscriptions, and products within our user economy.
We determine revenue recognition by identifying the contract or contracts with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract, and recognizing revenue when, or as, we satisfy a performance obligation.
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For customer contracts that include multiple performance obligations, we identify each distinct performance obligation and determine the transaction price, which may include an estimation of variable consideration, subject to constraint. The transaction price is allocated to each performance obligation using the stand-alone selling price, which is generally based on the observable price of each good or service.
We recognize advertising revenue only after transferring control of promised goods or services to customers, which occurs when a user clicks on an ad contracted on a cost per click (“CPC”) basis, views an ad contracted on a cost per thousand impressions (“CPM”) basis, views a video ad contracted on a cost per view (“CPV”) basis, or on a fixed fee basis, based upon ad delivery over the service period, which is typically less than 30 days in duration. Generally, we recognize advertising revenue on a gross basis since we control the advertising units before being transferred to our users. In arrangements where another party is involved in providing specified services to a customer, we evaluate whether we are the principal or agent. In this evaluation, we consider if we obtain control of the specified goods or services before they are transferred to the customer. For advertising revenue arrangements where we are not the principal, we recognize revenue on a net basis. For the periods presented, revenue for arrangements where we are the agent was not material.
The transaction price in advertising arrangements is generally calculated as the number of advertising units delivered multiplied by the contractually agreed upon CPC, CPM, or CPV, or on a fixed fee basis and revenue is recognized based on the number of clicks, impressions, or views, or ratable over the service period, respectively.
In our content licensing arrangements, we provide customers with the right to access content from our platform over the contractual period. The transaction price in content licensing arrangements is generally a fixed fee or usage-based fee. We recognize content licensing revenue as our content partners consume and benefit from their use of the licensed content, which is generally ratably over the license period. We recognize Reddit Premium subscription revenue ratably over the subscription period, which is generally less than one year. Products within our user economy include Reddit Gold and Collectible Avatars. Revenue from Reddit Gold and Collectible Avatars was not material for the years ended December 31, 2024, 2023, and 2022.
Stock-Based Compensation
We measure and recognize compensation expense for stock-based awards, including restricted stock units (“RSUs”), restricted stock awards (“RSAs”), and stock options granted to employees and non-employees based on the grant date fair value of the awards granted. Prior to our IPO, we did not recognize any stock-based compensation expense for RSUs with a liquidity-based vesting condition because no qualifying event had occurred. Upon the effectiveness of the IPO, the liquidity-based vesting condition for such RSUs was satisfied and we recorded cumulative stock-based compensation expense using the accelerated attribution method. The remaining unrecognized stock-based compensation expense related to these RSUs will be recorded over their remaining requisite service periods. For awards granted with only service-based vesting conditions, stock-based compensation expense is recognized on a straight-line basis over the requisite service period of the awards.
Common Stock Valuations
Prior to our IPO, the fair value of the Class A common stock underlying our stock-based awards was determined by our board of directors, with input from management and reviews of third-party valuations of our common stock determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.
Our board of directors exercised reasonable judgment and considered numerous subjective factors to determine the best estimate of the fair value of our common stock, including the following:
•the prices of recent issuances of convertible preferred stock by us to investors in arm’s-length transactions;
•the rights, preferences, and privileges of our convertible preferred stock relative to our common stock;
•third-party valuations of our common stock completed as of October 18, 2017, October 16, 2018, February 21, 2019, May 17, 2019, May 31, 2020, February 8, 2021, April 9, 2021, September 16, 2021, December 13, 2021, February 16, 2022, March 24, 2022, April 13, 2022, June 30, 2022, August 4, 2022, November 3, 2022, February 9, 2023, May 4, 2023, August 3, 2023, and December 30, 2023;
•the prices paid for common stock in tender offers and secondary market transactions;
•our performance and market position relative to our competitors or similar publicly traded companies;
•the likelihood and timing of achieving a liquidity event, such as an IPO or sale of our company, given internal company and prevailing market conditions;
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•our developments and milestones;
•the lack of marketability of our common stock; and
•U.S. and global capital market conditions.
In valuing our common stock, our board of directors determined the equity value of our business using various valuation methods including combinations of income and market approaches with input from management.
For each valuation, the equity value determined by the income and market approaches was then allocated to the common stock using either the option pricing method (“OPM”), or the probability-weighted expected return method (“PWERM”). Our valuations prior to September 16, 2021 were allocated utilizing the OPM approach. Beginning on September 16, 2021, our valuations were allocated utilizing the PWERM approach. Application of these valuation approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations and may have a material impact on the valuation of our common stock.
For valuations after the completion of our IPO, our board of directors has determined the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of grant. Future expense amounts for any particular period could be affected by changes in our assumptions or market conditions.
Recent Accounting Pronouncements
See Note 2—Basis of Presentation and Significant Accounting Policies of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for any recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.