Reddit posts profits thanks to better-than-expected revenue growth.

The company reported revenue of just over $348 million in the third quarter, up 68% year over year, exceeding expectations, while advertising revenue for the quarter was $315.1 million, up 56% year over year .

Reddit’s stock price rose more than 20% in after-hours trading.

COO Jen Wong cited an increase in impressions served, more efficient ad loading and higher density of ads in conversation threads as the key drivers of ad revenue growth. Advertising prices were consistent compared to the third quarter of 2023, she said.

According to Wong, it’s worth nothing that ad revenue grew in the quarter even without some of Reddit’s shiny new ad products, including generative AI creative tools and in-comment ads, being fully integrated into the platform.

But while Reddit appears to have a strong foundation for future growth, it still has a long way to go before its advertising business reaches parity with its social media peers.

Audience and revenue growth

Aside from comparisons with other platforms, the third quarter was packed with good news for Reddit investors.

Reddit’s average daily number of unique users for the quarter was 97.2 million, up 47% year over year, with strong growth in both the US and international markets. Average revenue per user was $3.58, up 14% year over year.

Reddit also cracked 100 million daily uniques multiple times during the quarter, which CEO Steve Huffman said was a “long-standing milestone.”

And here’s another interesting tidbit: “Reddit” was the sixth most Googled word in the US this quarter.

In terms of demand, performance revenue from mid- and lower-funnel campaigns accounted for 60% of Reddit’s ad revenue in the third quarter and drove more than half of its revenue growth, Wong said .

Spending by mid-market and SME advertisers increased 80% year-on-year, with SME spend in particular doubling year-on-year.

Ad-generated clicks also doubled this quarter, Wong said.

The third quarter also saw the launch of new conversion API (CAPI) integrations, with CAPI adoption also doubling compared to the previous quarter, while conversions increased by 50% compared to the second quarter.

New advertising products

Looking ahead, Reddit is focused on rolling out new search-based advertising products, Huffman said.

But Reddit’s most immediate opportunity to monetize audience growth is to continue increasing its ad load in the comment threads below the Redditor’s original post, also known as conversation pages. According to Huffman, conversation page views topped 90 billion in the third quarter, up 40% year over year.

And there’s even more room to load these pages with ads. Reddit launched a conversation ad unit for the first time in 2021, placing a banner ad directly below the original post in a thread. At this year’s Cannes Lions festival, Reddit announced plans to introduce even more ads between comments.

It’s unclear how many of these in-comment ads Reddit will add to conversation pages to maximize revenue. “Ad load is not a lever we are focusing on,” says Wong.

Demand for conversational and in-comment ads remains lower than in-feed ads but is growing, she added, although it will take some time for adoption of the new in-comment ads to gain steam, as is usually the case with newer ads. units.

But the company has a number of tricks up its sleeve to boost adoption.

For example, it recently introduced multi-placement optimization, which automatically determines an advertiser’s chosen result by adjusting where ads appear in the feed and in comment threads. More than 90% of lower-funnel campaigns now use this feature, Wong said.

Applying optimization for multiple placements is important because performance marketers are more focused on results and less focused on the exact placements they buy, Wong said. Automation spreads demand across inventory types and could prompt marketers to buy more conversation and commentary inventory if they see these units perform, she added.

And then there’s the plan to build a shopping platform for performance marketers, but that’s a longer-term priority, Wong says. Doing this “requires cataloging, proprietary machine learning models and more complicated measurements,” she said. “We are building that capacity, but it is a longer journey.”

And of course, Reddit has plans to capitalize on the generative AI craze. An automated headline generator was recently introduced to make sponsored posts feel more like they were written by community members. This solution is based on technology that Reddit acquired from Memorable AI, which specializes in understanding how creative design drives performance.

The next step for this technology is to integrate these generative AI capabilities into Reddit’s advertising technology, rather than offering the feature as a standalone tool. “We see a very comprehensive and exciting roadmap with respect to ad creation and gene AI,” said Wong.