Reddit plots a path to $1B in ad sales, but first it needs to convince brands
Reddit has finally revealed details behind its ad business and daily user base, and now says it has a path to $1 billion in revenue, but that’s up to three years away. The new disclosure shows that Reddit still has some growing to do to catch up to rivals like Twitter and Snapchat, as the company tries to win over brands with its unique proposition in the world of social media.
Reddit disclosed for the first time that it hit the $100 million mark in ad revenue in 2019, and it has 52 million daily active users, an increase of 44% since last year. Reddit has never had to divulge such stats since it is not a publicly traded company like its competitors, and it first released them to The Wall Street Journal this week. On Thursday, Reddit also told Ad Age that it predicts its growth trajectory will take it to the $1 billion in yearly revenue in two to three years.
“The reason why we shared daily numbers, I mean, obviously that’s a big number,” says Jen Wong, Reddit’s chief operating officer, referring to the user numbers. As for the ad business: “We’re really early in our life cycle in the advertising business that is competitive with our peers, so I’m actually really happy with where we are, because with our growth rates that gets us closer.”
The financial disclosure is an important step to understanding the health of Reddit as a platform. Like many social media companies, Reddit has had a turbulent year, dealing with COVID-19 and heightened attention on internet platforms and their policies around issues like privacy, safety and disinformation. Reddit, however, is not like most social media platforms—Facebook, Instagram, Snapchat, Twitter, Pinterest and TikTok. For one, it’s older than most of them, founded in 2005, but in many ways younger in terms of its business.
Reddit also is a difficult service for advertisers to fully understand, and users have a reputation for being tougher for brands to befriend. Reddit is a site comprised of communities called subreddits, run by users, with interests related to everything, including movies, games, news, sports, politics, pets, finance and more niche topics.
Best and worst
“The phrase I’ve heard about Reddit that always rings true is that it is the best and the worst place on the internet, and it can vacillate between those two ends of the spectrum with the swipe of the thumb,” says Ryan Ku, head of strategy and innovation at creative ad agency Eleven. “It’s a really challenging environment for brands understanding how to be relevant.”
Ad industry observers say that Reddit’s finances show that it is lagging behind rivals. For instance, Twitter has 187 million daily active users, and it made $3.5 billion in 2019. In the fourth quarter of 2019, the average user was worth about $6.50 on Twitter. A Reddit user would be valued between 50 cents and $1 every quarter, based on the company’s internal metrics.
“I think it is definitely low; if you look at the average revenue per user at all the other social sites, it seems way off the scatter chart,” says Andrew Frank, a Gartner researcher. “Most of them have average revenue that is between the $5 and $10 range.”
Snapchat, a younger platform, generated $2.72 on average for every user in the third quarter of this year. Reddit says it is growing, and expects more than 70% year-over-year ad growth in 2020, which would bring revenue to close to $170 million.
Reddit has been making inroads in the ad world, trying to ease brands into its community. It is working with its largest advertisers on tailoring ad campaigns to their brands, and it also offers some control as to where ads run. Reddit, like other social platforms, has been trying to implement brand safety standards, the kind that prevent ads from appearing next to any offensive user-submitted posts.
Harold Klaje, Reddit’s VP and president of global advertising, says the company reorganized the ad sales team this year. There are now teams that solely work with larger brands on tailor-made campaigns. Then there are teams for mid-market and small businesses.
“Our team, last year in 2019, it was one sales organization that was focusing on accounts, and we purposely decided to create what we call a large-customer sales organization,” Klaje says.
The large-customer group creates “bespoke work with our largest advertisers, and our sellers have less accounts that they focus on, so they can create deep partnerships,” he adds.
Not child’s play
Sylvain Tron, managing director at McKinney LA, is partly responsible for one of those types of “bespoke” campaigns. Last year, McKinney worked with Orion Pictures to promote “Child’s Play” with a chatbot on Reddit, which was an account that talked with Reddit users about the film.
It’s an example of the type of in-depth marketing that could either resonate on Reddit or fail. In this case, it worked, becoming one of Reddit’s top-performing campaigns.
“It was great working with Reddit,” Tron says. “Our client’s aspirations really aligned with what Reddit had to offer from a community standpoint. I don’t know that it applies for every film out there.”
Reddit points to Ally Financial and Adobe as two brands it worked with hand-in-hand this year. Adobe, in particular, went wild on Reddit. Adobe created a new community called “layer,” which had users contributing to a joint digital art project. Reddit said the community received 7 million visits, from users who spent 111,000 hours creating digital canvasses, promoting Adobe Creative Cloud.
Reddit has its own lingo, memes, and an overall different culture than most other platforms. The company tried to highlight that personality in its own ad campaign this year after it signed with ad agency R/GA. The campaign was slightly disrupted by COVID-19, which forced many brands to rethink their creative advertising and retool their messages for the times.
Reddit wound up developing more public service announcements showcasing the community-building on its network. It released a video thanking “the idiots” who make its platform fun, and of course the heroes, too. “The platform was always relevant and it’s only getting more and more relevant,” Wong says.
However, while Reddit has been a private company still trying to find its way in advertising, rivals like Pinterest and Snapchat have been reporting accelerating revenue growth. Those platforms got through the pandemic and are starting to see advertising take off. Pinterest reported $443 million in ad revenue in the third quarter, and Snapchat reported $679 million.
Reddit has also been working with the ad community on its brand-safety initiatives to explain its stance on user safety and ensuring brands appear in appropriate settings. Reddit has a partnership with Oracle Data Cloud to provide more transparency to brands about where their ads run.
One advertising executive with a major brand that markets on Reddit says that the platform is doing a lot of work on brand safety. “They have been very co-operative on brand safety and suitability issues, and created a robust set of tools for us to assure ourselves we are safe there,” the ad exec says speaking on the condition of anonymity.
Wong and Klaje say they are pleased with where the platform stands and that they feel the user base is an attractive one for brands. “We’ve done great work in explaining to our advertisers why consumers are on Reddit and what is so unique about Reddit,” Klaje says. “And, therefore, why it is so impactful for our partners to participate with us.”