Reddit reported revenue of $725.6M for 70% YoY growth and 24.1% QoQ growth, which reflects seasonality from the holiday quarter. When comparing to last year's Q4, the company reported 130 basis points higher growth on a QoQ basis – no small feat given the tough comps the company is lapping with six quarters of 60%+ growth.
The bottom-line shines with this stock as adjusted EBITDA was 45.1%, up from 36.1% in the year ago quarter. The GAAP operating margin of 31.9% has expanded sizably from the 12.4% margin reported last year for operating income of $232M. The free cash flow margin is 36.3%, leading the company to announce $1 billion in share repurchases.
Although many investors consider Reddit niche compared to larger sites like Facebook or Google, the key metrics steadily move up on this audience of roughly 500 million monthly users and 120 million daily users. Global average revenue per user (ARPU) grew 42% YoY, up from 23% YoY growth in Q4 of last year. Advertising revenue also accelerated to 75% growth compared to 60% last year.
Despite the strong report, the stock price has been slightly volatile. Management guided for a deceleration to 52.9% YoY growth, which leaves the market wondering if there is a catalyst in Reddit’s future. On the call, management pointed out they’ve guided conservatively for a few quarters now and discussed a new initiative to onboard advertisers at the bottom of the funnel with their AI-powered MAX platform. Another reason is that the company will no longer report logged-in users separately from logged-out users. This has been a point of contention for the Street for some time, which we covered in our previous analysis.
That said, stocks with unwavering fundamentals with 50%-60% growth on the top line and 100%+ growth on the bottom line have a way of being mispriced quickly during periods of uncertainty. Consider that Reddit offers a Rule of 40 (revenue growth plus adjusted EBITDA margin) of 115 compared to Palantir’s Rule of 40 (revenue growth plus adjusted operating margin) of 127. Reddit’s rule of 40 is up 7 percentage points sequentially and 8 percentage points YoY. As of now, Reddit’s sales valuation is at April lows whereas this quarter’s results challenge the market’s overly cautious stance.
Change in User Reporting Metrics
In our coverage of Reddit’s Q3 results, I stated: “Reddit’s report was not a Perfect 10 – it was more like a 9 out of 10. First, the logged-out user growth is outpacing the logged-in user growth, which will take some getting used to for Street analysts as they often imply in the Q&A that logged-out users don’t monetize as well.”
This has been a point of contention as the Street models logged-out users monetize at a lower rate, and yet Reddit is growing their logged-out users faster than logged-in users. This past quarter, global logged-in users grew 10% YoY compared to global logged-out users growing 27% YoY.
In the call this evening, Reddit announced plans to drop this key metric and will instead report users as one number starting in Q3: “As a result, we are updating our disclosures starting in the second half of 2026 to better reflect the metrics we use to run the business and evaluate our operating performance as we scale. Specifically, starting with Q3 2026 disclosures, we’ll continue to report the U.S. and international DAUQ and WAUQ numbers as we’ve done historically, but we will no longer report logged in and logged out metrics. Between now and Q3, we will continue to report logged in and logged out metrics for the first two quarters of 2026.”
Given Reddit has been able to put up strong top line numbers regardless of logged-in/logged-out, the concern may be exaggerated. However, dropping a key metric typically results in volatility after hours.
Potential Catalysts: Reddit Max and Google/Open AI Partnerships
At CES, Reddit announced the public beta launch of Reddit Max campaigns, which is an AI-powered campaign platform to help advertisers leverage Reddit’s data. The result is better targeting with management stating MAX campaigns saw 17% lower cost per acquisition (CPA) and 27% lift in conversion volume.
Reddit has always monetized through advertising, but Reddit Max marks a shift from primarily brand and contextual ads toward AI-driven, automated performance advertising that can increase the number of advertisers that Reddit onboards.
Although early, this could put Reddit on the map for using its personalized data to compete for ad dollars in performance advertising. Should it prove successful, this would also be a strong motivating factor for Reddit to drop the logged-in/logged-out user metric given users will see the performance ads regardless of logged-in status. Most importantly, these ads monetize at a higher rate than brand ads.
Here is what was stated on the call: “We plan to use Reddit Max as a foundation to streamline advertiser onboarding, particularly for smaller customers, and enable them to leverage the AI-powered tools and automation to simplify campaign creation from setup to creative, and augment performance from optimization to campaign insights. And through 2026, we plan to expand access and build automation that leverages Reddit’s 24 billion posts and comments, turning them into powerful signals to drive further improvements in ad performance.”
The obligatory question on Google and Open AI was touched on during the Q&A with management stating the partnerships are intact:
Steve Huffman, Co-founder and CEO, Reddit:
So on the AI deals, really our partnerships with Google and OpenAI, I think we can see the growing importance of Reddit. Reddit, per Profound, is the number one, cited source in AI answers. Our relationships with both companies are very healthy. The conversation is shifting from, you know, a purely business deal to, you know, more of a product partnership. And so, you know, I think the exchange will be, we help you build the best version of your products, and you help us build the best version of our products […]”
Financials
By Royston Roche
Strong Q4 Revenue Growth of 70%
Reddit once again reported stellar revenue growth of 69.7% YoY and 24.1% QoQ to $725.6 million. Revenue growth has been more than 60% for the sixth consecutive quarter. The company’s revenue beat estimates by a solid 8.8% and was better than last quarter’s beat of 6.4%. The strong revenue growth was primarily driven by 75% YoY growth in the advertising revenue to $690 million. While its other revenue, which includes licensing deals with Google and OpenAI, rose by a modest 8% YoY to $36 million. Regionally, U.S. revenue grew 68% and international revenue grew 78% YoY.
Management guided Q1 revenue of $595M to $605M, implying a YoY growth of 52.9% YoY and down (17.3%) QoQ. The company’s Q1 guide beat the analysts estimates by 4% and was also stronger than last quarter’s beat of 3.5%. Analysts expect Q2 revenue to grow 38.2% YoY and Q3 revenue to grow 36.3% YoY to $797.4 million.
Full year 2025 revenue grew by 69.4% YoY to $2.20 billion. Looking ahead, analysts expect 2026 revenue to grow by 41.8% YoY to $3.12 billion and 2027 revenue to grow by 25.7% YoY to $3.93 billion.
Q4 Advertising Revenue Growth of 75%
Q4 advertising revenue grew by 75% YoY to $690 million, accelerating from 74% growth in the previous quarter. Management attributed to impression growth as the main driver of revenue growth as the company’s AI investments are driving efficiency for advertisers delivering more outcomes and lower cost per action. Since last year, enhancements to the shopping ad ML models delivered over 75% improvement in advertisers return on investment.
In Q4, click volume in the mid-funnel grew over 60% and lower funnel conversion volume doubled YoY. The company’s shopping solution, Dynamic Product Ads or DPA, emerged as a lower funnel driver in Q4, fueled by strong performance during the Black Friday and Cyber Monday period.
The company’s active advertisers grew by 75% YoY in Q4 and Reddit added new customers across its channels, including large, mid-market and SMBs. The company also witnessed broad strength across verticals. 11 out of the top 15 verticals grew revenue by 50% or more YoY, led by retail, pharma, financial services and tech.
ARPU Grew by 42%
The company’s average revenue per user (ARPU) grew by 42% YoY and 19% QoQ to $5.98. ARPU growth accelerated from 41% YoY and 11% sequential growth in the previous quarter.
The US ARPU grew by 53% YoY to $10.79. Although it slightly decelerated from 54% YoY growth in Q3, on a sequential basis it accelerated to 19% growth from 15% QoQ in the previous quarter.
International ARPU grew by 38% YoY to $2.31 in Q4 compared to 39% growth in the previous quarter. While sequential growth strongly accelerated to 26% growth from 6% QoQ in Q3.
The company’s Daily Active Uniques (DAUq) are witnessing strong international growth. The Daily Active Uniques (DAUq) global grew by 19% YoY and 5% QoQ to 121.4 million, a similar growth rate in the previous quarter. The US DAUq grew by 9% YoY to 52.5 million in Q4, accelerating from 7% growth in Q3. While the international DAUq grew by 28% YoY to 68.9 million, decelerating from 31% growth in the previous quarter.
The company’s Weekly Active Uniques (WAUq) grew by 24% YoY and 6% QoQ to 471.6 million in Q4, accelerating 3 percentage points on a YoY basis growth from 21% and 7% QoQ growth in the previous quarter. International growth outpaced US growth as it grew by 34% YoY to 278.2 million, while the US grew by 12% YoY to 193.4 million.
Q4 Operating Margins Expand 19.5% YoY
The company is experiencing strong profit growth, primarily driven by operating leverage.
- Q4 gross profits grew by 68.5% YoY to $666.9 million with a gross margin of 91.9%. The gross margin was down 70 basis points YoY and up 90 basis points YoY. The company reported its sixth consecutive quarter of above 90% gross margins.
- The company’s operating income significantly improved to $231.8 million compared to $52.9 million in the same period last year. Operating margin improved by 19.5 percentage points YoY and 8.2 percentage points sequentially to 31.9% primarily driven by strong operating leverage.
- Q4 net income grew by 254.4% YoY to $251.6 million. Net profit margin improved by 18.1 percentage points YoY and 6.9 percentage points sequentially to 34.7%.
Full year 2025 gross margin improved to 91.2% from 90.5% in 2024. Operating margin improved to 20.1% from (43.1%) in 2024, driven by operating leverage and the company had higher IPO related expenses in 2024.
Q4 GAAP EPS grew by 244%
Q4 GAAP EPS grew by 244.4% YoY and 55% QoQ to $1.24, beating estimates by a solid 33.1%. Analysts expect EPS to grow by 286.6% YoY to $0.50 in Q1 and 86% YoY to $0.84 in Q2. Looking ahead, analysts expect 2026 EPS to grow by 54.9% YoY to $4.06 and 37.1% YoY to $5.56 in 2027.
Q4 adjusted EBITDA grew by 112% YoY to $327 million with an adjusted EBITDA margin of 45.1%, beating the management guidance of 42.4%. Adjusted EBITDA margin improved by 9 percentage points YoY and 4.8 percentage points sequentially.
Management has guided Q1 adjusted EBITDA margin of 35.8%, down 9.3 percentage points sequentially and up 6.4 percentage points YoY.
Cash Flow and Balance Sheet
Reddit reported strong cash flows primarily driven by record profits. The company’s balance sheet is robust, providing financial flexibility to invest in future growth and support share repurchases.
- Q4 operating cash flows grew by 196.5% YoY to $266.8 million with an operating cash flow margin of 36.8%, up 15.8 percentage points YoY.
- Q4 free cash flows grew by 195.7% YoY to $263.6 million with a free cash flow margin of 36.3%, up 15.5 percentage points YoY.
- The company has cash and marketable securities of $2.48 billion with no debt and cash increased by $250 million sequentially.
- The company also announced a $1 billion share repurchase program, further reflecting management’s confidence in sustained profit generation. Looking ahead, the company will continue to prioritize investing in the core business first; next, it will look for merger and acquisition opportunities; third, it will repurchase shares; and target keeping over $1 billion in cash on the balance sheet.
Conclusion:
Reddit’s Q4 illustrates a business that can put up strong growth that disproportionately flows down to the bottom line. Revenue growth of 70% year over year, accelerating advertising performance, and a sharp inflection in margins point to a platform that has moved well beyond the early stages of monetization.
We are keeping an eye on AI-powered initiatives like Reddit Max and LLM-based search traffic as two ways Reddit can increase ad spent and user engagement. Lastly, the valuation is very attractive and that is a key part to the equation.
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 own shares in RDDT at the time of writing and may own stocks pictured in the charts.
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