Reddit's Data Licensing Revenue Grew 24% to $43 Million, With OpenAI and Google as Its Two Biggest Buyers. Here's Why That Number Is So Tiny.

Reddit (NYSE: RDDT) just reported its eighth consecutive quarter of revenue growth greater than 60%. But its data-licensing business remains a footnote on the income statement, accounting for only 5% of its $805 million in second-quarter revenue. Data licensing sits inside "other revenue," which totaled $43 million in the second quarter, up 24% year over year.

Still, advertising remains the company's fastest-growing and biggest long-term opportunity, and that's where management continues to focus its efforts. This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia.

For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » Reddit is seeing interest from multiple parties that want to license its data, but Alphabet's Google and OpenAI are known to be its two largest data-licensing customers. They're using Reddit's data to train large language models and help computers generate more human-sounding responses.

At the same time, Reddit's data has value beyond AI training. As CEO Steve Huffman put it: "We do look at this as an expanding marketplace with lots of different opportunities." Even if licensing is immaterial today, it highlights one of Reddit's biggest advantages. The company has a lot of valuable data from millions of people discussing various topics.

Licensing this data is one way to make money, but digital advertising is where the real money is -- a market worth almost $1 trillion and growing. Reddit is still an advertising-first company, and that's where it's putting its energy. The key goal is to turn weekly active users (up 24% year over year to 514 million in Q2) into daily active users (up 18% to 130 million).

Management would like to reverse those growth rates because daily usage drives more ad impressions. The slower growth in daily actives underscores Reddit's reliance on search-driven traffic. Search referrals were choppy in the second quarter, potentially because more users are getting what they need from Google's AI-powered search summaries and never clicking through to Reddit.