Reddit pays new advertisers dollar for dollar in credits as Google's AI drains its search funnel

Reddit▼−2.27% — Reddit, down 2.27 percent today is now paying for its own funnel. New U.S. advertisers get $1,500 in ad credits for every $1,500 they spend↗ on campaigns live before November 20, and U.K. tiers run up to £2,000 of credit for £2,000 of spend ³. A dollar of credit for a dollar of first spend is not a discount on a mature business; it is the price of a customer Reddit would not otherwise have.

That price lands on Reddit shareholders, because the fourth-quarter print on February 5 will show revenue without showing whether that revenue was bought ¹.

Google's AI answers are cutting the top off

The funnel problem is measured. Reddit said search referrals fell by more than a million a week↗ on average in October, and its U.S. daily audience slipped 2% year over year to 50.7 million ⁴. COO Jen Wong said on the earnings call that "over 80% of our monetization"↗ sits on logged-in in-app users, so most of the people walking away were never paying Reddit much ¹. The rest of the quarter still looked strong: revenue rose 53% to $895 million ⁴.

So Reddit is rebuilding the destination

Reddit's answer is to convert casual visitors into users who arrive on purpose. On November 10 it rolled out Reddit Reviews to all U.S. users↗: AI-organized summaries of real user conversations across roughly 10,000 products, with a positive, negative and mixed sentiment breakdown, timed for holiday shopping research ². It is also testing ads inside its own search results ⁴. Each move turns a thread Google can summarize into a page Reddit owns, and gives a reason to log in that Google▲+0.08% — Google, up 0.08 percent today does not intermediate.

The question the February 5 print cannot answer

Reddit guided fourth-quarter revenue to $1.00 to $1.03 billion↗ ⁵, below the roughly $1.05 billion consensus ¹. Evercore·−0.17% — Evercore, down 0.17 percent as of its last quote ISI, the research arm of the investment bank Evercore, cut its price target from $265 to $120 ⁵. The credits are designed to close exactly that gap by paying new advertisers to show up.

OpenAI'sPVT$1.18T — OpenAI, private, latest valuation $1.18T ChatGPT Ads hit a $1 billion annualized run rate this year, and a Frankfurt School study found ChatGPT ads produced $0.89 per U.S. visit against $2.45 for Google search ads ⁴. Conversational ad demand is still worth less per visit than what it replaces; the credits bridge that discount while Reddit Reviews tries to make the audience worth the price.

Watch logged-in users, not revenue, on February 5 ¹. If the logged-in base keeps climbing and repeat advertisers renew without credits, the bought quarter was scaffolding for the destination. If not, the revenue Reddit reports will say more about the price it paid for advertisers than about demand ¹.