Reddit is now crushing it thanks to AI

When Reddit filed to go public in early 2024, I thought its valuation seemed steep. According to Reddit’s S-1, the company had made $804 million in revenue in 2023, up ~20% from the year before, but it had a $90 million net loss, and it had never been profitable. Its $9.5 billion market cap at the end of its first trading day felt high.

Additionally, while the S-1 mentioned “artificial intelligence” and “AI” 63 times, it wasn’t clear how artificial intelligence would generate higher revenues or user growth. The company claimed that its content is “particularly important for artificial intelligence (‘AI’) — it is a foundational part of how many of the leading large language models (‘LLMs’) have been trained,” and it planned to “drive growth in advertising revenue by focusing on initiatives to support advertising improvements, including increased use of artificial intelligence in our advertising solutions,” but every company has been claiming that AI would be transformative for their businesses, despite actual results being mixed.

After Reddit’s earnings report earlier this week, I take back any of my concerns from earlier this year. After reporting a killer quarter on Tuesday, Reddit’s stock jumped as high as 48% on Wednesday, reaching $121 per share after ending Tuesday at ~$82.

Some highlights from the earnings report:

• Daily Active Uniques climbed by 47% year over year to 97.2 million

• Revenue increased by 68% to $348.4 million

• Achieved first-ever GAAP profitability with $29.9 million in net income

One of the key drivers of Reddit’s recent success? AI, specifically with translation tools. From Reddit’s Q3 shareholder letter:

“This year, we started using AI to translate Reddit’s corpus into other languages, making it more accessible for non-English speakers to enjoy in their native languages. After promising results with French in the first half of this year, we expanded our coverage to include Spanish, Portuguese, Italian, and German. This quarter, machine translation drove four times more users than last quarter, and based on the success we’ve seen so far, we plan to expand machine translation to over 30 countries through 2025. As Reddit becomes a truly global platform, we are focused on ensuring everyone, regardless of their language, can participate in and benefit from the communities on Reddit.”

Reddit’s AI translation tools have made the platform more language agnostic, as users from different markets can now read more content, leading to an explosion in user growth. Interestingly, the AI boom seems to have created a tailwind for Reddit discoverability through Google Search as well:

“Reddit’s influence continues to grow across the broader internet. In 2024 so far, ‘Reddit’ was the sixth most Googled word in the U.S., underscoring that when people are looking for answers, advice, or community, they’re turning to Reddit.”

My hypothesis here is that the recent proliferation of AI content that we’ve seen has led internet users to seek out “real” content written by other humans. It’s a well-known meme at this point that we have all found the answer to some super-niche, ultra-specific question in a Reddit post from years ago, but the recent proliferation of AI content has made Reddit even more valuable.

An increasing amount of content on social media, and the internet in general, is AI-generated, SEO-optimized slop, but Reddit’s structure — different topic-based subreddits governed by moderators — has helped it prioritize human-created content. Additionally, people can more easily find answers and expertise on specific topics in different subreddits, while Google Search is hit-or-miss and generative-AI tools like ChatGPT are still prone to hallucinations.

Reddit is experiencing an incredible AI flywheel: distrust in AI content is causing internet users to add “Reddit” to their Google Searches to get real answers, and the company is leveraging its own AI tools to make its content more accessible. With its market cap now double its $9.5 billion valuation after its IPO, Reddit has proven to be one of the more successful “AI” stories so far.