How did Reddit's AI tools boost ad revenue by 70%?

Reddit crushed Q4 estimates with 70% revenue growth to $726M as AI-powered ad tools drive 75% advertiser base expansion, finally helping the platform become a serious Meta competitor. They also forecast first-quarter revenue above analysts' estimates.

Reddit delivered great results for the holiday quarter which ended December 31. Revenue smashed LSEG estimates of $665.4 million. Earnings per share hit $1.24, doubling consensus expectations of 94 cents.

Daily active unique visitors climbed 19% to 121.4 million, while global average revenue per user jumped 42%. Active advertiser base exploded 75% year-over-year, fueled by new account additions across channels, COO Jen Wong told analysts.

AI Ad Renaissance Drives Growth

Reddit's ad renaissance centers on AI-driven campaign tools making subreddit placements high-performance channels. The AI copywriter generates Reddit-native ad copy while image auto-crop optimizes visuals for the platform format.​

Max campaigns automate bidding to hit cost-per-result targets, dynamically selecting headlines and creatives, directly challenging Meta's automated ad suites. 11 out of the top 15 ad verticals grew revenue 50%+ YoY, led by retail, pharma, financial services, and technology.

COO Jen Wong highlighted subreddit targeting precision: Brands reach hyper-engaged niche communities discussing relevant products within authentic conversations, unlike generic social feeds.​

Building Momentum Across Metrics

Emarketer's Jeremy Goldman called results "surprisingly strong" given high expectations. "Product momentum, advertiser demand, and user engagement now reinforce one another," said Jeremy. Reddit proves AI data licensing is a durable stream.

Their human-moderated conversations power premium training datasets, balancing search referral risks with enterprise deals like OpenAI and Google..

Q4 momentum builds on Q3's $0.80 EPS blowout (vs. $0.51 expected) and $585M revenue. Trailing twelve months show 70% total revenue growth and 147% EBITDA expansion, positioning Reddit among digital media's fastest growers.

The company launched its first-ever $1 billion share buyback program, sending shares up 4% after-hours. Q1 guidance crushes Street forecasts, revenue $595-605 million (vs. $577.2M expected) and adjusted EBITDA $210-220 million (vs. $202.9M).

CEO Steve Huffman also emphasized Reddit's human edge saying, "Reddit is the most human place on the internet." Jen Wong added on strategy saying, "Our strategy is to increase engagement.”

Reddit faces three interlocking execution challenges to sustain momentum. First, ad platform scaling, where Max campaigns delivered a 17% CPA reduction in pilots but Q1 must prove enterprise adoption across verticals beyond retail/pharma success.

Second, user monetization, where the platform's 121.4M DAUs provide massive scale yet converting visitors to logged-in, monetizable users remains critical through new onboarding processes.

Third, AI licensing balance, where data deals generate upfront revenue from premium human-moderated datasets but long-term search traffic dependency requires adaptation as AI answers increasingly replace subreddit referrals in Google/OpenAI responses.

“In Q4, we made significant progress in unifying our core search with Reddit Answers, our AI-powered search feature. Together, they drove more search volume and queries per user, with over 80 million people searching directly on Reddit every week in Q4, up from 60 million just a year ago,” said Huffman.

Buyback Signals Platform Bet

Reddit challenges Meta's ad automation, TikTok's cultural relevance, and Snap's youth focus. Subreddit authenticity trumps algorithm-curated feeds with a 75% advertiser growth proving brands value conversational context.

A big part of this effort is improving feed relevancy, using AI and machine learning to make Reddit feel more personalized and useful from the second you open the app.

Most companies wait 3–5 years post-IPO before launching a buyback (like Pinterest did). Reddit initiating a $1 billion program less than two years after its debut suggests that its AI licensing deals with Google and OpenAI have provided a "cash cushion" that peers like Snap simply don't have.

Wall Street consensus rates RDDT Buy with $252.39 mean target (65% upside from $152). Evercore ISI initiated Outperform/$320 in January, Deutsche Bank raised to $285. Analysts watch user growth recovery and Max campaign scaling beyond pilots.

By choosing a buyback over a massive acquisition, Reddit is trying to say that it believes its most valuable asset is its own platform.