how much of reddit's revenue is coming from increase in spending by customer vs advertising cost increase
In Reddit’s recent quarterly Form 10-Q filings, roughly two-thirds (65% to 70%) of advertising revenue growth comes from advertising unit price increases (CPM inflation), while roughly one-third (30% to 35%) comes from volume growth (more ad impressions delivered).
However, because Reddit operates a second-price auction rather than a fixed rate card, those "price increases" are the direct result of advertiser budget expansion and new advertiser competition bidding up a constrained supply of logged-in ad impressions, alongside higher click-through and conversion yields per impression.
1. The SEC Form 10-Q Breakdown: Price vs. Volume (Supply)
In its quarterly SEC filings (MD&A), Reddit explicitly decomposes its advertising revenue growth (ΔRev=(1+ΔImpressions)×(1+ΔPrice)−1\Delta \text{Rev} = (1 + \Delta \text{Impressions}) × (1 + \Delta \text{Price}) - 1ΔRev=(1+ΔImpressions)×(1+ΔPrice)−1) into two variables: Ad Impressions Delivered and Average Price per Ad.
| Period | Ad Revenue ($M) | YoY Ad Revenue Growth | Ad Impressions Delivered (Volume) | Average Price per Ad (Unit Cost) | Share of Growth from Price vs. Volume |
|---|---|---|---|---|---|
| Q1 2026 (10-Q) | $625.0M | +74% YoY | +32% YoY | +32% YoY | ~50% Price / ~50% Volume (1.32 × 1.32 = 1.742) |
| Q2 2026 (10-Q) | ~$762.0M | +64% YoY | +17% YoY | +40% YoY | ~70% Price / ~30% Volume (1.17 × 1.40 = 1.638) |
| Q3 2026 (10-Q) | $847.0M | +54% YoY | +15% YoY | +34% YoY | ~69% Price / ~31% Volume (1.15 × 1.34 = 1.541) |
- The Q2 & Q3 Shift: In Q1 2026, growth was evenly split between impression supply (+32%) and ad pricing (+32%). Over the subsequent two quarters (Q2 and Q3 2026), impression volume growth decelerated to 15%–17% YoY (tracking closer to overall user growth of 12%–18% DAUq), while ad price increases (+34% to +40% YoY) drove ~70% of the total revenue expansion.
2. Customer Spend Expansion vs. New Customer Acquisition
Unlike enterprise SaaS companies, Reddit does not report a formal Net Dollar Retention (NDR) figure in its 10-Q. However, management’s disclosures across recent earnings calls break down how customer spending behavior feeds the top line:
- Total Active Advertiser Headcount (+50% to +75% YoY): In H1 2026, Reddit disclosed that its total active advertiser count surged 70% to 75% YoY. In Q3 2026, mid-market active advertisers grew over 50% YoY. Because total ad revenue (+54% to +74% YoY) and active advertiser count (+50% to +75% YoY) have grown at roughly parallel rates, blended average revenue per active advertiser across the entire pool is roughly flat, only because a massive wave of smaller SMB and mid-market advertisers (with smaller initial budgets) is continuously entering the denominator.
- Existing Customer Spend Expansion ("Scaled" Channel +80% YoY): In Q3 2026, Reddit’s Scaled channel (mid-market and SMB self-serve/managed advertisers) grew revenue over 80% YoY—outpacing overall ad revenue growth of 54%. COO Jen Wong explicitly noted this was driven by three pillars: existing advertiser budget expansion (higher average spend per retained customer), new advertiser logos, and international ad growth (+68% YoY).
- Budget Shift to Lower-Funnel Performance (+95% YoY): Over 60% of Reddit's ad revenue now comes from performance-oriented lower-funnel objectives (rather than brand awareness takeovers). In Q3 2026, shopping and app-install ad spending each grew >95% YoY, showing existing advertisers are uncapping budgets once campaigns hit target CPA thresholds.
3. Why Ad Prices Are Rising (+34% to +40%) While Customer CPAs Are Falling
At first glance, a 34%–40% YoY increase in ad prices in the 10-Q looks like pure cost inflation that should hurt advertiser returns. In reality, two mechanical factors explain why advertisers are increasing their spend per impression without seeing a 40% spike in customer acquisition cost (CPA):
- Click and Conversion Yield per Impression Surged Faster Than Impression Supply:
- In Q3 2026, while delivered ad impressions grew only 15% YoY, total click volume increased >50% YoY and conversion volume more than tripled (+200%+ YoY).
- Because most performance advertisers bid on a CPC (cost per click) or oCPM/tCPA (conversion-optimized) basis via Reddit’s automated bidding, when Reddit’s ad-matching AI doubles the click-through rate (CTR) or triples the conversion rate on an impression, the effective CPM (price per 1,000 impressions) automatically rises by 30%–40%, even if the advertiser's cost per conversion stays flat or drops. Management noted that advertisers adopting auto-bidding yield an average 16% pricing lift for Reddit while simultaneously seeing 17% lower CPA in split tests.
- Auction Congestion on Logged-In Inventory:
- Over 80% of Reddit’s monetization occurs on logged-in and mobile app users. While total DAUq grew 12% in Q3 2026 (with Google search referrals declining), active advertiser count grew 50%+ to 70%+.
- With 50%+ more advertisers bidding into an impression supply that only expanded 15%–17%, auction density increased sharply, pushing up clearing prices in high-intent verticals (tech, retail, finance, gaming) and placement formats (such as Conversation Ads inside comment threads).