Is Reddit about to replicate Facebook’s 2012 miracle?

Disclaimer: This is not financial advice. I am a Reddit shareholder / marketer with a predisposition for the company to do well.

Most Redditors hate any discussion or comparison of Reddit with Meta.

Which is understandable when you consider Meta has grown into far more than just a simple social media platform.

However the simple fact remains that 98% of Meta’s revenue is driven by a single source: advertising.

And there are some obvious parallels between Reddit and Facebook that are difficult to ignore:

1. They’re both social media platforms dependent on user attention for advertising dollars.
2. They both started with a highly engaged audience, but no obvious means of monetisation.
3. They have almost identical ad platforms, with targeting based on interests, demographics, devices etc.
4. They both utilise pixel technology for audience profiling, retargeting and reporting conversions.

Now in terms of audience and revenue they aren’t even in the same league:

Metric	Meta Platforms (Q4 2024)	Reddit (Q4 2024)
Daily Active Users	3.29bn	97.2m
Quarterly Revenue	$40.59bn	$348.4m

And of course with Meta we’re talking a suite of platforms and not just Facebook.

But for the purposes of this analysis what we’re interested in knowing is:

Can Reddit replicate Facebook’s successful monetisation of its audience?

Rewind to 2012, the year of Facebook’s IPO.

You could pick up Facebook stock for around $20 (sadly I never did).

Over the next seven years, in North America, Facebook was able to grow its ARPU (Average Revenue Per User) by 10x – from an average of $4.08 in 2012 to $41.41 by 2019:

https://www.statista.com/statistics/251328/facebooks-average-revenue-per-user-by-region

And this correlated with a 10x growth in the stock price over the same period, which finished up around $200 in late 2019.

Why is ARPU significant? Well in 2012 Facebook already had an audience of 179m Monthly Active Users (MAU’s) in North America. By 2019 that audience numbered 223m.

So while their audience in North America grew by just 25% over seven years, ARPU grew 915%.

Essentially, the changes that took place over seven years meant Facebook successfully monetised their existing audience in the especially lucrative North American market. In other words they were able to squeeze more advertising revenue from each user, which enabled annual revenue to grow from $5b to $70b.

Why is any of this relevant for Reddit?

Well, I firstly want to very clearly state that I do not believe Reddit will be the next Facebook.

These are fundamentally different platforms which offer value in different ways to different types of audiences.

But I do think:

1. There are many interesting parallels between Facebook at IPO and Reddit today.
2. Most notably, Reddit’s US WAU (Weekly Active User) count from their Q3 2024 earnings report stood at 178m – around the same level as Facebook’s MAU (Monthly Active Users) of 179m in 2012.
3. Reddit’s current US ARPU is also nearly identical to Facebook at IPO, standing at just $5.88 in Q3 2024 (vs Facebook’s $4.08 in 2012).

It’s obviously a gigantic ask, but if Reddit can grow their ARPU by monetising their existing audience in the same way Facebook did, they can unlock similar multiples of value.

And we know that Reddit already has the required audience exposure (and growth trajectory) in North America to be a significant revenue generating business.

So the $200bn question is:

What happened with Facebook between 2012 – 2019 that led to such a huge growth in their ARPU? And can it be replicated?

I worked in several digital agencies over this time and [whilst I wasn’t in social] I remember 2015 onwards as a ‘gold rush’ for some of the clients we worked with.

Initially, I remember that Facebook ads offered a low return and were commonly considered to be a waste of money.

In fact a lot of the arguments I heard back then [why Facebook would never work as an ad platform for brands] are the same ones I hear today about Reddit.

But this soon changed very quickly.

The dates and specifics are a little fuzzy in my mind but the timeline went something like this:

• Brands were acutely aware of the significant audience numbers using Facebook and Instagram, but ad campaigns were rarely successful in the early days.
• Almost overnight, Facebook began to offer a noticeably lower CPA (Cost Per Acquisition) for advertisers than comparable channels like Google Ads. I believe this was sometime around or after the release of the Facebook pixel in 2015.
• Excited marketers and agencies began pushing Facebook as the next big opportunity for brands.
• As more brands began to advertise on Facebook, installations of the Facebook pixel increased exponentially.
• Later, as more brands sussed out the platform it gradually became more competitive and more expensive to run ads – a lot of smaller players were pushed out and replaced by larger brands with bigger budgets.

So essentially this ‘perfect alignment’ (which felt to me as if it happened overnight) was more the culmination of a few big factors working in tandem and eventually compounding over years:

1. Audiences moving to the platform in their droves.
2. Brands looking to advertise to them (brands will always meet audiences where they are spending their time).
3. Improvements to Facebook’s ad platform behind the scenes, making advertising campaigns easier to set up and optimise.
4. The release of the Facebook audience pixel in 2015 and increasing installations across advertiser websites for the next 5 years; improving audience modelling and making ads more targeted.
5. A resulting improvement in targeting and conversions. As more high-traffic websites installed the Facebook pixel, this allowed Facebook to profile its users better and group them into more targeted audiences. As anybody working in paid acquisition will tell you, audience targeting accuracy is probably the most important factor in achieving a profitable return on ad spend. If your ads are being shown to the wrong audiences, they aren’t going to convert.
6. A move to mobile-first and video content – meaning Facebook could offer native video ads, which offered a higher ROI for advertisers.
7. Brands enjoying success on Facebook, prompting others to participate through FOMO, driving ad auction prices up further.

As I see it, there is no reason this scenario can’t play out the same way for Reddit.

Reddit has an equivalent pixel to Facebook for advertisers to use. Its audience is reaching the same levels as Facebook circa 2012. And still growing fast.

As more brands advertise on Reddit, pixel installations increase and targeting improves. As targeting improves so does return on ad spend for advertisers. As ROAS improves, more brands launch on Reddit. As competition increases, so do ad prices at auction. And so on.

This very quickly becomes a snowball (let’s call this snowball ‘ARPU’) that grows ever larger with momentum on its side.

How can Reddit replicate those same factors that led to Facebook’s growth in ARPU?

Let’s look at each of the factors above in relation to Reddit:

Audiences

I think we can argue definitively that all the indicators look great in terms of user growth.

• Reddit’s Daily Active Unique’s (DAU’s) grew 47% YoY to 97.2m in Q3 2024.
• Reddit brand searches in Google trending to ATH.
• Reddit is the sixth most searched term in Google US.
• Reddit is the third largest website by Google organic traffic in the US.
• I could go on…

And coming back to my earlier point, as long as audiences are spending their time on Reddit, brands will look to meet them there.

But ARPU will only truly increase significantly where Reddit is able to serve targeted ads. And that can only happen if users are logged-in (so Reddit can use your browsing behaviour to group you into target audiences).

As it stands, roughly half of Reddit’s users are logged-out, which is a very high percentage. For instance on Facebook, the platform has always been inaccessible to logged-out users.

I could probably write an entirely separate post about why I think Reddit should consider gating the comments on content for logged-in users only.

But with all things considered this could be a relatively easy change – and maybe they are just waiting for the right time to execute the switch.

Brand Saturation

In their latest letter to shareholders Reddit stated an 80% year-over-year growth in their advertising business across the full funnel. Put simply, more businesses (of all sizes) are advertising on Reddit.

And this shows in Reddit pixel installations which are at an all-time high and increasing each month.

But they are still some way off Facebook pixel installations, which look to have been declining for a few years now. I do wonder if this is more a result of websites blocking crawler access (since the proliferation of generative AI) than brands actually removing the pixel.

	Facebook Pixel Installations	Reddit Pixel Installations
Top 10k Sites	18.05%	4.64%
Top 100k Sites	17.90%	2.62%
Top 1m Sites	15.33%	0.98%

This is purely anecdotal but as a user, I am noticing that the quality of brands advertising on Reddit has improved substantially too in the last year (clearly more reputable, larger businesses are running ads).

Where is the tipping point at which targeting becomes vastly improved?

That’s a huge unknown – based on my own experience, targeting is still a way off and there is much room for improvement.

Ad Platform

I am sure that there is a lot going on behind the scenes to improve the ads platform. And I’ve been particularly impressed with the introduction of Reddit Pro, which shows Reddit is making an effort to encourage brands onto the platform.

This is an area I’d like to see more happening, but I do know that Reddit recently hired a Google Ads veteran to lead their ads product.

And Google knows a thing or two about monetisation.

Hopefully Reddit don’t follow their lead to the point of making their core product an objectively terrible experience for users, but that’s another story.

Personally I think Reddit has leeway and credibility in the bank with its users, who could likely accept a lot more monetisation without sacrificing the user experience too heavily.

Video / Mobile Content

Again this is purely anecdotal as a user, but I’ve noticed way more video content on Reddit this year than ever before. And that extends to auto-playing video ads too.

I don’t think this is a coincidence and I think the team at Reddit may be slowly transforming it into a video-friendly platform with one eye on the ad opportunity.

Unfortunately I can’t find any reliable way to measure this so I’ll have to gauge it from personal experience for the time being.

Interested to hear if any readers have any insights they can offer on this front.

The key Reddit performance indicators I’m watching out for

So can Reddit do it? If so we should start to see the signs over the next few years.

Alongside user growth and revenue, the key indicators I’d like to see trending upwards in the next year or two:

• ARPU
• Pixel installations / advertiser diversity
• Prevalence of video content on Reddit

And changes to content visibility for logged-out users would be significant.

Plotting Reddit’s current US audience against comparable Facebook ARPU by year shows the opportunity is sizeable:

Modelling	US Daily Users (m)	ARPU	Quarterly Revenue ($m)
Reddit Q3 2024	48.2	$5.88	$283
Facebook 2014	48.2	$9.00	$434
Facebook 2015	48.2	$13.70	$660
Facebook 2016	48.2	$19.81	$955
Facebook 2017	48.2	$26.76	$1,290
Facebook 2018	48.2	$34.86	$1,680
Facebook 2019	48.2	$41.41	$1,996

Reddit’s current US audience with Facebook’s 2019 matured US ARPU would make it an $8bn / year business.

This number assumes no further audience growth (highly unlikely) and doesn’t include revenue from international and data licensing deals.

So the scale of the opportunity here is as enormous as the undertaking.

Notes

* For simplicity I only looked at North America because it’s responsible for the lion’s share of earnings and it tends to precede trends in other markets. I know other markets are important, but not to the point I’m looking to make here.

** There are sometimes differences in the way in which companies calculate and report on ARPU. As far as I can tell, the ARPU numbers for Reddit and Facebook use relatively similar distinctions and calculations. Regardless, my point remains the same.