Reddit Stock Blows the Doors Off – Can it Last?

Reddit’s stock has surged 62% in one month, easily placing the company’s earnings report as one of the best to come out of the tech sector this quarter. The world’s leading forum site has only 416 million weekly active users compared to Facebook’s 2 billion yet ranks fifth behind Facebook as the most visited site in the United States. In addition, due to a few changes in how Google surfaces content with AI overviews, Reddit is now the second most visible site in the United States – ranking above Facebook for example – and the top line results show the company is reaping the rewards of being in the search giant’s good favor.  

Therein lies the risk, which is that Reddit’s current growth is dependent upon how a Big Tech company graciously offers visibility on its platform – something that is entirely outside of Reddit’s control. The partnership could continue for years, or it could stop at any time. 

Below, we offer a few ways to approach the opportunity that Reddit presents and what an investor should look for to determine if Reddit will continue to be an anomaly in that AI-driven search benefits the social platform (whereas it hurts traffic for most other publishers). The analysis also discusses what to watch for in terms of Reddit hitting peak growth and the catalysts that could drive the stock further.

Source: YCharts 

Reddit’s Web Rankings are Surging; Driving Stock Returns

Reddit delivered a rather impressive Q2 on July 31st with revenue beating estimates by more than 17%. Growth translated to the bottom line as GAAP net margin expanded to 18%. Driving much of these results is the new improved web rankings that Reddit has seen over the past year due to Google’s AI Overviews. 

Over the last two years, Reddit has seen an explosion in SEO visibility on Google, with data from Sistrix placing growth from July 2023 to April 2024 at a whopping 1,328%. This moved Reddit from 85th most visible site to the 7th most visible.  

Now, as of August 2025, Reddit has moved to 2nd most visible site in the US, per Sistrix, behind Wikipedia, and ahead of popular sites such as Facebook in 7th, Amazon in 4th, and YouTube in 3rd. This major improvement in SEO ranking may be a potential contributor to Reddit’s accelerating growth over the past five quarters – yet as stated, the surge in growth is out of Reddit’s control and relies on Google SEO placement, which could change at anytime. 

In terms of user engagement, Reddit notched 4 billion visits as of July 2025, according to data from Similarweb, compared to 12.1 billion for Facebook, 6.6 billion for Instagram, and 4.5 billion for X. Users visited an average of 4.83 pages per visit with an average visit duration of 6 minutes, compared to 12.57 pages per visit and an average duration of more than 10 minutes for Facebook. Similarweb places Reddit as the fifth-most visited site in the US, behind Facebook in fourth place. 

Advertising Revenue Rises 84% YoY

Behind the substantial revenue beat in Q2 was 84% growth in advertising revenue to $465 million. This marked a sharp 23 point acceleration from 61% growth in Q1. Sequentially, advertising revenue grew almost 30%, with growth of more $106 million QoQ, outpacing Q4 2024’s $79 million sequential increase. This is impressive considering Q4 is typically the strongest seasonally for the company.  

Reddit said that the majority of this advertising growth was driven by existing advertisers deepening investments on the platform, though it did see 50% YoY growth in active advertisers as it continued to acquire new advertisers. Additionally, performance ads and brand ads both increased more than 80% YoY, reflecting strong engagement from advertisers on the platform.  

Reddit also highlighted ways it is driving higher return on ad spend for advertisers and higher click-through rates, both key factors in increasing ad spend to maintain a robust ad revenue flywheel. Management said that Dynamic Product Ads for shopping were made generally available in Q2, and advertisers were consistently achieving 2x higher ROAS on average versus standard campaigns. Reddit also said that Conversation Summary Add-Ons, which integrate positive user conversations directly into product or brand ads, were delivering more than 10% higher click-through rates versus standard image ads. 

Reddit Monetizes through Ads, yet is Expanding its Monetization Methods

Similar to most large audiences online, Reddit monetizes through ads. While ads are its main revenue stream, the company has recently branched out into premium subscriptions and data licensing deals.  

Reddit’s recent product updates target all three of its stated growth levers: core product, search and international growth. 

In core product, Reddit is working to boost engagement and platform stickiness by lowering barriers to log-in, using AI to improve personalization of homescreens and community discovery, and improve user onboarding. Bringing more logged-in users to the platform is especially important considering logged-in users contribute a higher ARPU than logged-out, yet this cohort accounts for under 45% of daily active unique users (DAUq).  

Reddit Search is another product feature that now has 70 million weekly active unique users (WAUq) as of Q2, or a nearly 17% attach rate to its global WAUq of 416.4 million. Within this is Reddit’s AI-powered search engine Reddit Answers, which saw WAUq rise 500% sequentially in Q2, from 1 million to 6 million, or nearly 10% attach of Search users.   

Answers are separate from Search in Q1, although Reddit is now working to unify the two centrally in the same search-box, assisting in queries from new users, existing users, and users routed to Reddit via external search engines.  

Query growth has been very strong, with Reddit noting that average query volume rose more than 10X sequentially from Q1 to Q2.  

Reddit Seeks International Expansion: Double-edge sword

Global expansion for Answers is continuing, with the feature only available to US users and some international markets including the UK, India, Australia and Canada. While International user growth is outpacing US growth by a large degree, Reddit expanded the rollout of its AI-powered automatic Machine Translation feature from 13 languages in Q1 to 23 in Q2.  

Available across 35+ countries worldwide, Machine Translation removes barriers between users in different geographies, by allowing them to “post and comment in their preferred language, which will be auto-translated into the community’s native language.”  

For example, Reddit says that users in Spain who typically use Reddit in Spanish could seamlessly contribute to French communities and threads. By lowering barriers to communicate between different geographies and languages, Reddit is opening the door to further expand its 235 million international user base (for comparison, Meta’s international active users are 11x higher). 

This is a double-edged sword, however, as the United States region presents a hidden risk and could create a headwind to growth as user growth stalls, considering the region contributes the bulk of revenue. 

Reddit’s WAUq Shows Stronger International Growth, US Plateau

International weekly active unique users (WAUq) growth remains quite strong, with Q2 being its sixth consecutive quarter of >30% growth. Meanawhile, United States WAUq is plateauing, with growth decelerating 60 points over the past year and 10 points in the past quarter to just 8% in Q2.

• Global WAUq rose 22% YoY and 4% QoQ to 416.4 million. 
• US WAUq rose just 8% YoY and 1.5% QoQ to 181 million. In terms of user additions, YoY growth was just 13.5 million.  
• International WAUq rose 35% YoY and nearly 6% QoQ to 235.4 million, or user additions of more than 60 million YoY.  

Why Slowing United States User Growth is not Ideal

The plateau in US WAUq with minimal growth since Q3 2024 raises the risk that Reddit’s US penetration is approaching a peak and already maturing. With estimated US internet users of 322 million, Reddit’s penetration would be around 56%, versus Meta at 84% with 272 million MAUs in the US as of Q4 2023.  

Should Reddit find it difficult to boost its US penetration towards 200 million and above, or if US user growth does plateau here, future revenue gains will hinge on two key monetization drivers: impressions growth or ARPU growth.  

Driving impressions growth higher would rely on increasing ad loads either via higher platform engagement or content consumption (higher time spent or pages visited), or greater ad density. Ad density is a rather fine line to walk without oversaturating the platform with ads to the detriment of the user experience. ARPU growth would stem from improving ad pricing from better targeting or higher-value, higher-converting formats (increasing ROAS for advertisers), which Reddit is currently working on. 

This also ties into international growth – International monetizes at just over one-fifth the rate of US, yet now accounts for almost 57% of WAUq, up from 51% a year ago. If US plateaus and International continues to grow much quicker, say at >20% YoY, this presents a real headwind to global ARPU since the region monetizes at a much lower rate yet accounts for an increasingly larger share of users. 

The One Metric that Reddit Investors Should Watch Closely

Reddit was the worst YTD performer against peers in June when fears were rising around traffic hits from Google’s AI Overviews, with shares down more than (30%) YTD. Barely two months later, shares have doubled, now making Reddit the best performer with its YTD return of 37%. 

We believe one key metric – above all other numbers – will help determine if Reddit can sustain darling status in 2025 and beyond. Given the meteoric rise this past month with Reddit’s stock seeing gains of 62% in one month, the information below is not to be missed. 

Sign up below to access the following information: 

• The one key metric that provides an important hint as to whether Reddit can sustain its stock trajectory. 
• Breaking down in granular detail why The Street is buying the stock; information we haven’t touched on yet in this analysis 
• Why top line growth is important but may not be what ultimately drives the stock’s performance – and what will drive the stock further instead  

Reddit’s ARPU Accelerates to Record High

The one metric that suggests Reddit’s run may not be over is the impressive acceleration seen in ARPU this past quarter.  

This past quarter marked the highest sequential growth in ARPU in more than three years at 25%, outpacing even Q4 24’s 18% growth. This could spell good things for the upcoming Q4, which is a seasonally high quarter for ad companies. 

Global ARPU was $4.53 in Q2, accelerating 24 points to 47% YoY, driven primarily by growth in ad impressions and to a lesser extent, growth in ad prices. Ad pricing still did provide a “nice tailwind” in Q2, per Reddit, accelerating a bit further in Q2 after beginning to accelerate in Q1. Unlike Meta, Reddit does not break out impressions or pricing growth, so it’s impossible to see the pace at which the pricing metrics are growing. 

Management believes global ARPU is “still low on an absolute basis and remains an opportunity” for long-term improvement – for example, Meta’s global ARPU is around 3x of Reddit’s at $13.65 as of Q2, and though Meta hasn’t updated regional metrics since the end of 2023, it’s possible that US ARPU is 10x that of Reddit’s.  

US ARPU jumped to $7.87, accelerating 28 points sequentially to 59% YoY in Q2. This is a remarkable achievement, considering US ARPU had struggled to grow in early 2024, with the year ago quarter seeing ARPU decline (5%) YoY.  

International ARPU rose 40% YoY to $1.73, also an 18 point sequential acceleration from 22% growth in Q1. While the region monetizes at a much lower rate than the US, similar to Meta, growth is lagging the US, presenting a headwind to global ARPU moving forward as international now begins to overtake the US in terms of active user share. 

Strong ARPU drives Revenue Acceleration, but may peak in Q2

Reddit reported 77.7% growth in revenue in Q2 to $499.6 million, well ahead of estimates for just $426 million in the quarter – to put this in perspective, Reddit’s advertising revenue of $465 million alone would have beat estimates by more than 9%. AI data licensing and other revenue remains in the backseat, growing just 24% YoY to $34.8 million, or 7% of revenue. 

Q2 marked Reddit’s fastest growth since the start of 2022, and a significant improvement over the past two years from just 12% growth at the start of 2023. What’s even more impressive is that Reddit delivered this 77.7% growth on top of a rather difficult 53.6% comp, yet this may shape up to be the peak growth quarter for the year as comps get tougher.

For Q3, Reddit guided for $535 to $545 million in revenue, or 55% at midpoint, against a 67.9% comp from Q3 2024. This was a strong outlook, more than 14% above consensus estimates for $473 million for the quarter. For Q4, analysts are currently expecting growth of 46.8% YoY to nearly $628 million.  

It’s not all smooth sailing for Reddit, as changes to Google’s algorithm and AI overviews have provided some headwinds. Management was straightforward in Q1 in saying that they do “expect some bumps along the way from Google because we’ve already seen a few this year. This is expected in any year, but given that the search ecosystem is under heavy construction, the near term could be more bumpy than usual.” Reddit did state that Google traffic varies from week to week, but that it was a headwind in Q2. 

Looking ahead, Reddit is currently expected to generate $2.06 billion in revenue in 2025, up nearly 59% YoY – this is 20 points faster than estimates from six months ago at 39% YoY to $1.81 billion. For 2026, Reddit is projected to report nearly 32% growth to $2.72 billion, more than doubling its revenue in just two years (from $1.3 billion in 2024).  

While discussing revenue, it’s important to touch upon advertiser concentration, as Reddit is quite heavily concentrated. Reddit noted that its top ten largest customers accounted for 25% and 26% of revenue in 2024 and 2023, or $325 million and $209 million respectively.

Analysts Raise Estimates = The Street buys the stock

Reddit’s revenue and earnings revisions are strongly positive as the company’s business momentum continues to outpace estimates quarter after quarter — few stocks in the tech universe boast revenue and earnings revisions to this degree. 

Over the past month, consensus EPS estimates through Q4 2026, or the next six quarters, have been revised 23% to 66% higher; over the past six months, estimates have moved 20% to 57% higher, as margins strengthen. For example, Q2 2026 has seen its estimate move from $0.42 to $0.70 over the past month, and Q3 2026 from $0.55 to $0.83. This now projects three consecutive quarters of triple-digit YoY growth followed by three consecutive quarters of >50% growth.  

For revenue, Reddit is now expected to see six consecutive quarters of >30% growth, with strong revisions to estimates through mid to late 2026. Q2 2026’s estimate has been revised nearly 21% higher over the past month from $545 million to $659 million, while Q3’s revenue has risen from $601 million to $711 million. 

On an annual basis, Reddit’s FY26 EPS has been revised 29% higher over the past month from $2.35 to $3.02, and revenue 14% higher from $2.39 billion to $2.72 billion. 

Reddit’s Quality Fundamentals

In addition to the rapid rise in analyst estimates, which provides immediate room in the stock’s valuation, Reddit offers quality fundamentals (as many ad-based models do). 

GAAP Net Margin at 18% Despite Rising Costs, High SBC

While the acceleration in advertising revenue and strong ARPU growth is certainly impressive, Reddit’s margin profile is arguably more impressive this quarter. The margin expansion is especially impressive considering SBC is quite high, and costs are rising at the highest pace in more than a year. 

Reddit reported its fourth consecutive quarter with a >90% gross margin in Q2, while operating and net margin also marked their fourth consecutive quarter in positive territory. 

• Gross margin was 90/8% in Q2, up 1.3 points YoY and marginally higher QoQ. 
• Operating margin was 13.6%, up nearly 25 points YoY and 12.6 points QoQ. Notably, this also exceeded Q4 2024’s operating margin of 12.4%. 
• Net margin was 17.9%, up more than 21 points YoY and 11.2 points QoQ. Net margin is higher than operating margin as Reddit benefits from interest income on its $2 billion in cash on hand. 

What’s remarkable here is that Reddit delivered this level of improvement in operating and net margin despite operating expenses rising nearly 37% YoY in Q2, and with SBC being quite elevated at 18% of revenue. This also implies that as Reddit matures and scales revenue into the billions in the long run, there is a pathway to potentially double net margin should expenses growth normalize back to the teens and SBC also normalize to a much lower percentage of revenue.  

EPS and Adjusted EBITDA

Fueled by the large top-line beat and strength in margins down the line, Reddit delivered an outstanding 138% EPS beat in Q2, reporting $0.45 per share versus estimates for $0.19.  

Looking ahead, EPS is expected to grow triple digits in both Q3 and Q4, with current estimates pointing to 209% YoY growth to $0.49 in Q3 and 111% growth to $0.76 in Q4. This implies analysts are placing Reddit’s net margin at approximately 25% by Q4, up 7 points, assuming minimal share dilution. 

For the full year, Reddit is expected to report EPS of $1.86, with the majority of this coming in the next two quarters. For 2026, EPS is projected to grow nearly 63% YoY to $3.02, outpacing revenue growth by a factor of 2x as Reddit benefits from increasing operating leverage. 

Adjusted EBITDA was $166.7 million in Q2 for a 33.4% margin, up more than 19 points YoY and 4 points QoQ. However, unlike operating and net margins, adjusted EBITDA margin did not surpass Q4’s level. For Q3, Reddit guided for $185 to $195 million in adjusted EBITDA, or a 35.2% margin at midpoint.

Cash Flows and Balance Sheet

Cash flows continue to be strong, with Q2 the fourth consecutive quarter with cash flow margins above 20%. Reddit’s balance sheet is very healthy as well, with no debt and more than $2 billion in cash and marketable securities. 

• Operating cash flow was $111.3 million in Q2, up 292% YoY. OCF margin was 22.3%, down 10 points QoQ but up more than 12 points YoY. 
• Due to limited capex expenditures, free cash flow and operating cash flow are correlated nearly 1:1. Free cash flow was $110.8 million in Q2 for a 22.2% margin. 
• Cash and marketable securities have increased more than 20% over the past year to $2.06 billion. 

One more catalyst to mention: Reddit Seeks AI Data Licensing Deals:

While advertising revenue is firmly in the drivers seat for growth, accounting for 93% of revenue in Q2, Reddit does have some opportunities from AI data licensing. Ahead of its IPO in early 2024, Reddit stated that it had signed contracts worth $203 million over a two to three-year period, letting companies train AI models on its >1 billion cumulative posts and >16 billion comments.  

In February 2024, it was revealed that Google was behind one of the deals, worth an estimated $60 million per year; shortly after this was announced, the FTC opened an inquiry into Reddit’s AI data licensing plans. In March 2024, Reddit signed another deal with PR firm Cision, and in May, Reddit signed a deal with OpenAI for data licensing, with OpenAI to bring ‘enhanced’ Reddit content to ChatGPT and become an ad partner on the site. 

However, the AI data licensing side has seen its fair share of controversy, with Reddit recently suing OpenAI competitor Anthropic in June, alleging it was training its AI models by scraping Reddit’s data without consent. Additionally, earlier this week, Reddit began blocking internet archive the Wayback Machine from accessing its site, in order to prevent unnamed AI firms from using the archive to scrape data for free. 

Valuation Far Above Peers

Reddit was the worst YTD performer against peers in June when fears were rising around traffic hits from Google’s AI Overviews, with shares down more than (30%) YTD. Barely two months later, shares have doubled, now making Reddit the best performer with its YTD return of 37%.  

Source: YCharts

Interestingly, despite underperforming the sector through all of Q2, Reddit has traded at a premium on a forward PS basis the entire year, and has returned to its prior peak and frothy level at >20x forward PS. Reddit now trades at double Meta’s valuation at 10.1x forward PS, yet is admittedly a much higher growth stock. When compared to Applovin, another high growth ad model, Reddit trades similarly with APP at 24 forward PS.

Source: YCharts

On the bottom line, Reddit trades at a forward PE ratio of 60 compared to Applovin at 40 and Meta at 20 forward PE ratio. EV to forward EBTIDA is similar with Reddit trading at a premium of 42 versus App at 30 and Meta at 15.

Conclusion

Reddit is firing on all cylinders with a huge beat and raise in Q2, driven by a rapid acceleration in advertising revenue and ARPU. As of now, Q3’s guide, while nearly 15% above estimates, still implies Q2 will be the peak growth quarter for the year at 78% YoY before decelerating by >20 points into year-end. Despite topline growth being more subdued according to current analyst estimates, the company has triple-digit growth incoming on the bottom line for the next three quarters – any beat here will help the valuation. 

The company also delivered GAAP operating and net margin expansion to new highs at 13.6% and 17.9%, even with costs rising in the high-30% range YoY and elevated SBC in the high-teens percentage of revenue.  

The slowing United States user growth is to be watched, leaving the primary challenge of expanding ARPU globally.  So far, so good there as ARPU is hinting that something important is going on with the stock’s monetization strategy, which we’ve outlined in this report.

Special FREE 1-hour webinar on how to manage risk with Bitcoin and cryptocurrencies. Join the team that identified Bitcoin’s previous top and previous bottom with impeccable accuracy – Knox Ridley of the I/O Fund and Vincent Duchaine of Wealth Umbrella – in a special webinar held on August 21st at 4:30 pm EST. More details here 

Our five-year cumulative returns of 210% would place us as #2 if we were a hedge fund and #5 if we were an ETF. Learn more here

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund do not own shares in RDDT at the time of writing and may own stocks pictured in the charts.

Recommended Reading:

• ServiceNow Q2 Earnings: Inside the AI Push Toward $1 Billion ACV by 2026
• Is Bitcoin’s Bull Run Nearing a Top? What the Herd Missed at $16,000 and is Missing Now
• Is the S&P 500 Overdue for a Correction? 2025 Forecast & Buy Levels to Watch
• Google Stock Clears Major Hurdle, Yet One Serious Concern Remains