Reddit’s earnings report ticked a lot of boxes. The company beat on the top line with growth of 68% YoY and 17% QoQ. The bottom line was also strong with a 10-point sequential expansion in GAAP operating margin to 23.7%, an adjusted EBITDA margin above 40%, and EPS grew 400% YoY. It’s easy to see why this stock ranked very high on my Top 15 list – in fact, it was my top software choice due to the clean fundamentals.
Reddit represents monetization momentum in the AI era as its data is highly valuable for training LLMs. There is something far more important that Reddit provides in the AI era than simply a forum; rather Reddit offers a continuous supply of human-generated conversations. What was once a forum is now a wealth of opinions and loads of sentiment that AI models desperately need to produce more natural and sentient-sounding responses. In fact, about a week ago, Reddit announced they are suing companies like Perplexity and Anthropic for scraping their site.
In exchange for data, Reddit ranks high on Google Search and in AI search results from Open AI, as well. This has helped Reddit move from #85 ranked site to #2 when we last covered the stock. Management stated they are currently ranked #3 this month: “Today, Reddit is the #3 most visited site in the U.S. for Semrush October 2025. That puts us in a rare company. YouTube is #2 and Amazon is #4.” The increased search ranking helped Reddit grow both their daily active users (DAUq) and weekly active users (WAUq) at a rate of 20% YoY.
With that said, 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.
Second, Reddit has put up some strong post-IPO growth rates with five quarters above 60% growth, yet management guided for 54% revenue growth next quarter and analysts see Reddit dipping below 40% growth two quarters out. We will want to watch this closely as IPOs are known for coming strong out of the gate. As stated in the Top 15 report, every stock must prove it belongs in our portfolio. Therefore, Reddit will need to prove to us that it can maintain a healthy growth rate to hold its spot. There are some strong tailwinds, yet accelerating revenue in the near future will be key for this stock.
Reddit’s Future Growth Opportunities – Search and More
A study by Profound from August 2024 to June 2025 of 30 million citations across ChatGPT, Google AI Overviews, and Perplexity revealed that the latter two frequently cited Reddit, while ChatGPT primarily cited Wikipedia. Reddit was the top citation for Google’s AI Overviews at 21% and for Perplexity at 46.7%, while at ChatGPT, Reddit was the second most cited source at 11.3%, far behind Wikipedia at 47.9%.
However, per Promptwatch, Reddit’s share of citations on ChatGPT fell from ~14% in early September down to 2-4%. As of mid-October, Reddit remained the most frequently cited social platform at 3.3%, slightly behind Profound’s data showing 3.8%.
Source: Promptwatch
Overall, the vast treasure trove of Reddit’s user-generated, opinionated content backed by structed engagement data is increasingly valuable to LLMs, as Reddit executives explained at the Zero Click Summit in October. This could lead to more lucrative licensing deals in the future.
Management implied Q4 is looking strong so far on growth trends: “Looking into Q4, we exited Q3 higher than our average. So we have a head start. Beyond that, we're going to see how the quarter plays out.”
There was also discussion on the call about reducing friction as Reddit’s onboarding is fairly clunky and invasive in terms of accessing content a user wants to see: “But today, it's behind a couple of screens of interrogation before you actually get to see it. And so really streamlining that or even removing it are the things that we're putting in the test shortly and making sure users are landing on speeds that are relevant to them.”
Later, it was discussed that knowing personal information on a user may not necessarily lead to a higher path of monetization for Reddit, which leaves an important clue as to how Reddit could spark future growth – from what I gather, removing the need to be logged in could be Reddit’s next step to driving more growth: “And finally, I think your third question was capturing identity of logged out users. Look, all of Reddit is really built around this idea of connecting users with their interests. So not necessarily what or who they are, but what they're into on Reddit. And so that's how we're different than some other platforms. We don't need to know who you are or necessarily even how old you are or other demographics because we look at your explicit interest on Reddit, right? Are you part of the skiing community, you're probably in the outdoor stuff. Are you coming from a parenting blog, you're probably a parent. And so that's generally how we think about it. And I think it's a little bit of a different model, but I think it's better for user privacy, and we can target on, I think, a unique but really powerful dimension.”
Reddit’s Web Rankings, Engagement Remain Solid Since Q2
As a brief recap, Reddit was the 2nd most visible site August, behind Wikipedia, and ahead of popular sites such as Facebook in 7th, Amazon in 4th, and even YouTube in 3rd. In October, Reddit’s web rankings continue to remain strong, with Sistrix placing it as the third most visible site as of October 30, with YouTube taking the 2nd place spot.
In terms of user engagement, Reddit notched 3.8 billion visits in September, down (5.4%) MoM after rising 1.5% MoM in August, per Similarweb, slightly underperforming Facebook, which saw monthly visits decline (4.7%) MoM to 11.4 billion. In the US, Reddit’s web traffic was estimated to be down (5.8%) MoM in September, versus (5.1%) for Facebook. Similarweb places Reddit as the fifth-most visited site in the US, behind Facebook in fourth place.
However, it’s important to remember that this is a factor that’s entirely out of Reddit’s control as algorithms and rankings could change anytime.
Reddit Sues Perplexity for ‘Illegal’ Data Scraping
Despite being Perplexity’s preferred source for AI searches, Reddit sued the startup in early October, claiming it was scraping data from Reddit without permission to train its AI responses. Reddit claims that it created a “test post” that was only visible to Google’s crawler, but “within hours”, Perplexity’s queries contained contents of the post, suggesting Perplexity or its three data scraping partners scraped Google and then incorporated that data into its engine.
Rumors of New Data Licensing Pricing with Google, OpenAI
In mid-September, it was rumored that Reddit was exploring new data licensing deals with Google and OpenAI, with company executives believing current terms with fixed pay do not accurately reflect the value Reddit brings to AI answers, tying in to its high share in AI citations.
Instead, the company is rumored to be seeking a dynamic pricing model “where pay would be determined by how useful or important content is to the answers generated by AI tools.” This could provide more upside to Reddit’s data licensing side, which currently accounts for 6% of revenue in Q3, considering how frequently it is cited in AI Overviews and on ChatGPT.
Most importantly, the revenue contribution from Reddit’s partnership with Google is not reported in a linear fashion. During the call, an analyst noted that roughly half of Reddit’s traffic is direct, while half comes from Google. Management confirmed the 50/50 split is “approximate, but pretty close.” This means Reddit is receiving an additional benefit from Google that isn’t fully visible within the data licensing revenue line item – rather, it’s mainly visible in the strong advertising growth from the traffic Google is sending to Reddit. Overall, the true impact of Reddit’s partnership with Google is hard to quantify.
Strong Q3 Revenue Growth of 68%
Reddit once again reported stellar revenue growth of 67.9% YoY and 17.1% QoQ to $584.9 million. Revenue growth was more than 60% for the fifth consecutive quarter. The company’s Q3 revenue beat the analyst’s estimates by 6.4%. The strong growth was primarily driven by 74% YoY growth in the advertising revenue to $549 million. While its other revenues, which include licensing deals with Google and OpenAI, rose by a modest 7% YoY to $36 million. Regionally, revenue grew 67% and 74% YoY in the US and internationally, respectively.
The company has also guided strong Q4 guidance in the range of $655 million to $665 million, representing a YoY growth of 54.3% YoY and 12.8% QoQ. The company’s Q4 guide beat the analysts’ estimates by 3.5%. Analysts expect revenue to grow 42% YoY in Q1 and 34.8% YoY in Q2 to $673.6 million.
The co-founder and CEO, Steven Huffman, highlighted during the earnings call that Reddit is the #3 most visited site in the U.S. per Semrush, October 2025. The company is also making strong progress across the 3 focus areas they shared last quarter: core product, search, and internationalization.
The company has redesigned the website with a more modern, search-forward interface and streamlined onboarding, making it easier for new users to find what they're looking for. This is achieved through a dynamic, personalized home feed, along with the incorporation of AI tools. The company also continues to enhance search results to make Reddit a go-to search destination. Third, international growth continues to accelerate, and AI-powered machine translation is now available in 30 languages, serving as a major driver of top-of-funnel growth outside the U.S.
Looking forward, analysts expect revenue to grow 35.8% YoY to $2.83 billion in 2026 and 29% YoY growth to $3.65 billion in 2027.
Advertising Revenue Growth of 74%
The Q3 advertising revenue grew by 74% YoY to $549 million, primarily driven by broad-based strength across the business as the company continues to expand existing relationships, acquire new customers and diversify its advertising base. The total active advertising customers grew by over a solid 75% YoY as the company added new accounts across businesses, including large mid-market and SMB businesses.
The company’s AI-optimized ad platform continues to drive strong growth in the second half of the year. The strong advertising revenue growth is a direct result of Reddit’s ongoing investments in AI ad models and formats, which drive greater performance and efficiency, leading to better ROI for advertisers.
The company continued to optimize the models for lower-funnel objectives, including app installs and conversions. The ML-driven optimizations in the lower-funnel conversion objective improved performance by over 20%. To strengthen the lower-funnel strategy, it continues to make it easier for businesses of all sizes to adopt the measurement tools, including Pixel and conversions API (CAPI). In Q3, CAPI-covered conversion revenue tripled year-over-year.
For the upper funnel, the company launched the beta of auto bidding, which simplifies budget management and improves efficiency, leading to over 15% more impressions and lower pricing for advertisers. In the middle and lower funnel, auto targeting is delivering strong results, and adoption is growing over 50% year-over-year.
ARPU grows by 41%
The company’s Q3 Average revenue per user (ARPU) grew by 41% YoY to $5.04. Management believes that this is still low on an absolute basis and remains an opportunity for the company. Though growth has decelerated from 47% reported in Q2 due to tough comps, it was up 11% on a sequential basis.
The US ARPU grew by 54% YoY to $9.04, a 5-point deceleration from a strong 59% YoY growth in Q2. However, it grew by 15% sequentially.
The International ARPU grew by 39% YoY to $1.84, a slight deceleration from the 40% growth reported in Q2 and was up 6% sequentially.
The company’s Daily Active Uniques (DAUq) are witnessing strong international growth. The Daily Active Uniques (DAUq) global grew by 19% YoY to 116 million. While US growth is stabilizing as it grew by 7% YoY to 51.6 million, it showed a sequential growth of 3%, while it was flat in Q2. The international DAUq growth was solid as it was up 31% YoY to 64.4 million.
The company’s Weekly Active Uniques (WAUq) grew by 21% YoY to 443.8 million. International growth outpaced US growth as it grew by 37% YoY to 256 million, while the US grew by 6% YoY to 187.8 million.
Operating Margins Expand 21.7% YoY
The company is experiencing strong profit growth, primarily driven by operating leverage.
- Q3 gross profits grew by 69.7% YoY to $532.4 million with a gross margin of 91%. The gross margin is up 90 basis points YoY and up 20 basis points sequentially. The company reported its fifth consecutive quarter of above 90% gross margins.
- Operating income was $138.5 million compared to a mere $6.9 million in the same period last year. Operating margin improved by 21.7 percentage points YoY and 10.1 percentage points sequentially to 23.7%, primarily driven by operating leverage.
- Net income grew by 444% YoY and up 82.1% QoQ to $162.6 million. Net profit margin improved by 19.2 percentage points YoY and 9.9 percentage points sequentially to 27.8%.
EPS grew by 400%
The company’s Q3 GAAP EPS grew by 400% YoY and 78% sequentially to $0.80, beating analyst estimates by a solid 53.8%. Analysts expect EPS to grow 119.6% YoY to $0.79 in Q4 and 226.7% YoY growth to $0.42 in Q1 2026. Looking forward, they expect EPS to grow 76.3% YoY to $3.35 in 2026 and 39.9% YoY to $4.69 in 2027.
Q3 adjusted EBITDA grew by 151% YoY to $236 million. Adjusted EBITDA margin improved by 13.3 percentage points YoY and 6.9 percentage points sequentially to 40.3%, beating the management guidance by 5.1 percentage points.
Management has guided Q4 adjusted EBITDA in the range of $275 million to $285 million, representing a YoY growth of 81.5% at the midpoint. Adjusted EBITDA margin guide for Q4 is 42.4%, which represents a YoY increase of 6.3 percentage points.
Cash Flow and Balance Sheet
The company reported strong cash flows primarily driven by record profits.
- Q3 operating cash flows grew by 158.6% YoY to $185.16 million with an operating cash flow margin of 31.7%, up 11.1 percentage points YoY.
- Q3 free cash flows grew by 160.5% YoY to $183.1 million, with a free cash flow margin of 31.3%, up 11.1 percentage points YoY. The company generated $510 million in free cash flows in the last twelve months.
- The company has a strong balance sheet of $2.23 billion in cash and no debt. The cash increased by $170 million sequentially.
Conclusion:
The true impact of Reddit’s partnership with Google is hard to exactly quantify given it’s more about the traffic Reddit receives than the licensing revenue – however, web rankings help support that Reddit has officially arrived in the AI era. The primary reason that Reddit could remain in a leading position longer than one might imagine is the uniqueness of the data. As the COO stated: “I think Reddit's corpus of information is clearly incredibly valuable and helpful to LLMs because it's human conversation that's fresh, it's authentic. It's just distinctive. There's nothing like it.”
Reddit delivered one of the strongest prints of the season so far: a top-line and bottom-line beat, nearly 10-point margin expansion sequentially, cash flow margins above 30%, ARPU up 41% YoY, and revenue increasing 17% QoQ. Although Reddit reported early in the earnings season, the company has set a remarkably high bar — one that very few tech companies will be able to keep up with as more earnings results continue to roll in.
I/O Fund Equity Analysts Damien Robbins and Royston Roche contributed to this analysis.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
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