Reddit exhibits a quiet fundamental strength, with management highlighting its “one of one” financial model as the only publicly listed tech company with >40% revenue growth, >30% adjusted EBITDA and FCF margins, <$15 million in capex and >90% gross margins. Although it’s primarily the gross margin that sets the company apart in the “one of one” marketing language, it’s notable because Reddit’s valuation remains quite low. 

Q1 was a solid quarter for the social platform with Q1 revenue up 69% YoY, ARPU marginally accelerating to 44% YoY, operating and free cash flow margins of 47%, and a Rule of 40 score of 109%. 

On the ad front, Reddit is showing impressive strength in driving costs lower while increasing conversions and ROAS for advertisers, pointing out that they doubled the number of conversions delivered YoY in Q1. Conversion-driven lower funnel revenue was highlighted as a particular area of strength with growth of triple-digits YoY, while Reddit is focusing on driving top of funnel growth via more data in models, updating models faster and accelerating models into production – all without a high capex bill like Meta. 

We have frequently discussed the potential headwinds to Reddit’s story from algorithm changes within Google Search, its key traffic vector. This quarter, Reddit largely brushed off concerns that algorithm changes in Search would impact traffic, explaining that some changes help traffic and some hurt, but they “almost never stand out on our traffic long term.” 

There are a few puts and takes to Reddit’s growth story. Notably, the company is extremely early in its AI ads journey with Max being just 3 months old versus Meta’s Advantage+ on its fourth year, and Dynamic Product Ads only one year old, yet is already driving significant ROAS and conversion gains for advertisers with lower CPA.  

Logged-in user growth continued to decelerate, though Reddit sees an ability to monetize both logged-in and logged-out users relatively equally based on impressions. On user growth more specifically, Reddit is aiming to drive global DAU 8X higher to 1 billion, a cornerstone for future ad revenue growth via higher impressions and engagement on its platform, yet it comes with a self-inflicted headwind on relying heavier on the much lower-ARPU International region to come to fruition. To offset this, management discussed growing US DAU by roughly 2X to 100 million.  

Net-net, Reddit’s overall revenue is decelerating, which is the primary blemish. Management stated in their opening comments this is the seventh consecutive quarter of >60% growth, yet they are guiding for growth of 44%. Therefore, the main question is whether Reddit is headed permanently to sub-40% or even sub-30% growth or is there a catalyst on the horizon?  

Logged-in Users Monetize Higher, and Growth Decelerates 

Q1 is the second-to-last quarter where Reddit will offer its logged-in and logged-out user metrics.  This quarter, logged-in user growth decelerated once more while logged-out user growth remained steady with growth nearly 20 points faster.  

Logged-in daily active unique users (DAUq) grew 7% YoY to 52.0 million in Q1, though this growth was almost entirely driven by International, up 12% YoY to 28.8 million as US growth was barely 1% to 23.2 million. This also marked a three point deceleration from 10% YoY growth in logged-in users in Q4, and a seven deceleration from Q3. 

On the flip side, logged-out users grew 26% in Q1 to 74.8 million, just a one point deceleration from 27% in Q4 and a two point acceleration from Q3’s 24% growth. This again was led by International with 38% growth to 44.5 million, while US grew 12% to 30.3 million.  

This dynamic has been a major point of contention over the last couple of quarters as the Street models logged-out users monetizing at a lower rate, while they grow faster than logged-in users at a larger scale. Reddit did confirm this in Q1, but offered commentary that it does not matter as much as they can monetize both user groups rather equally based on impressions:  

“The only reason why logged-in users, you'd say have a higher ARPU than a logged out user is just because they spend more time and they see more impressions. 

But because of the time spent and the engagement, the impressions are actually pretty equal in terms of their value. So there's no differential in our ability to monetize any impression against those users. There's no difference. And we do monetize both types of users, we have great contextual signal on all our users. And then obviously, we have history on logged-out users and even more in terms of logged-in users because they subscribe to communities.” 

Outside of the higher impressions, one of the reasons why logged-in users monetize at a higher rate builds on the last point from above, and this is something we touched upon in our Meta analysis – personalization. Since logged-in users spend more time on the platform with higher engagement, Reddit knows these users better, and can better personalize their feeds and deliver the ads most relevant to them. Reddit re-emphasized this point, explaining that “seeing more users in the app, more users logging in, more users getting the personalization faster drives engagement and then, therefore, monetization.” 

This is where the market’s concerns have arisen, with logged-in users monetizing at higher rates, yet growth continues to decelerate. Reddit still has some levers to pull to drive log-ins, such as with Passkeys, which management sees as an easier and more secure way of logging in that will help drive log-in user growth.   

Overall, the takeaway is that Reddit is a unique business model as it combines heavily sought-out search function with social aspects. Management feels confident logged-out will monetize at a similar rate as logged-in – for example, Google ads do quite well due to search intent – but given the low valuation, the market is communicating it prefers to wait and see than front-load Reddit’s valuation on management commentary. 

DAU Growth a Core Focus, but Raises a Key Risk 

While increasing its monetization ability on the ads side from AI optimizations and automated campaigns is a key growth lever, the second boils down to user growth – more visits, more eyeballs, more engagement and more ad impressions.  

Q1 featured lengthy discussion on Reddit’s user growth goals over the longer-term (likely 10 years), with the company having its sights set on reaching 1 billion global DAUq, an ~8X increase from Q1, with 100 million DAUq in the US, up ~2X. This would shift Reddit’s DAUq demographics to 90% International for DAUq and 10% US, compared to its current split of ~42% US and 58% International today.   

This is one of Reddit’s core focuses for 2026: accelerating user frequency, or the number of days a Redditor visits the site. While the path to 1 billion DAUq does require Reddit to acquire half a billion more new users, it also requires the company to leverage is WAUq (weekly active user) base, which currently sits at 493.1 million, up 23% YoY.  

Reddit is already working on that piece of the puzzle: 

“So, we think about how do we increase that frequency from maybe once a week to, for example, every day. There are — there's a lot on the list here. Our focus the last couple of quarters has been onboarding. We're seeing progress there. We've moved new user retention in the quarter. Feeds will be a major driver looking forward. I think we're at the relative beginning of our journey there. Search has been a consistent driver. 

So carrying most of the weight the last couple of quarters has been machine translation. We’re translated in 30 languages today. We've been able to lower the cost there, which is nice. It allows us to scale even more there. And then performance is another big driver. And we look at gaps between iOS and Android and what the expected delta should be, which is basically 0. So I think a lot of opportunity there as well.” 

Reddit revealed more insights on user frequency in a separate question, explaining that viewing this as “how many days per week do users come to Reddit” sees the highest frequencies at 1 day and 7 days – the first being more of the WAUq (one visit per trailing seven days) and the second being its DAUq.  

This is why Reddit is focusing on performance improvements, expanding Search (with WAUq up 30%), expanding machine translation, improving the quality and personalization of its feed and improving new user retention, to bridge the gap between the 1 day and 7 day users and drive a much larger share of its weekly users to become daily. 

However, there’s one critical point to discuss here for Reddit’s long-term DAUq vision. By relying on substantial growth in International users to reach the 1 billion goal, Reddit arguably is creating its own headwind to ARPU.  

This is because US users monetize at a much higher rate, and this is not specific to Reddit as Meta also sees a similar differentiation. Reddit’s US ARPU in Q1 was $9.63, nearly 5X higher than Reddit’s International ARPU of $2.02. International ARPU is unlikely to close that gap anytime soon, as growth was three points slower than US in the quarter at 50.7% versus 53.6% YoY. As DAUq begins to shift from its current ~58% International towards the ~90% needed to hit the 1 billion target, the higher proportion of lower-monetizing users could weigh on growth, though this is not likely to be seen for quite a few years.  

Strong AI Ads Momentum with Reddit Max and DPA 

When it comes to ads automation or AI-driven campaigns for advertisers, Reddit is still early in its journey as its automated platform Max is only on its third month, while Dynamic Product Ads (DPA) are barely a year old. Despite this, Reddit is already seeing strong gains in ROAS for advertisers, meaning the two could emerge as potential catalysts to keep ARPU growth and thus revenue growth strong.  

We had said in our Q4 write-up, Reddit Q4: Unwavering Fundamentals; Change in User Reporting Metrics, that Reddit’s new Max campaigns, launched in public beta in January, represent its shift towards an AI-driven, automated ads platform that can increase the number of advertisers that Reddit onboards – the latter point was hammered home in Q1 with Reddit revealing a >75% YoY increase in active advertisers.  

Max encompasses the first and second parts of Reddit’s three-pronged ads strategy: scaling automation and delivering increased advertiser value across objectives. The reason we are watching Max closely as a potential longer-term growth catalyst is that it drives costs lower while offering strong uplifts to conversions or ROAS. Reddit says Max, on average, can drive a ~17% decrease in cost per acquisition (CPA), using tools such as auto bidding, alongside a 27% lift in conversion volumes, highlighting furniture brand Cozey in Q1, which saw a 27-28% decrease in CPM/CPA alongside a 35% increase in ROAS.  

This compares to a ~7-10% decrease in CPAs on Meta’s Advantage+ with a comparable 29% increase in ROAS with Shop ads, which could make Max a compelling option for advertisers, notably in the shopping vertical where Reddit has a rich treasure trove of data. However, the challenge here is shopping is where Advantage+ found success, reaching a $20 billion run rate, up 70% YoY, in Q4 2024. Reddit noted that 40% of conversations on Reddit see people “actively discussing products, services and purchase decisions,” with 40% YoY growth in high-intent shopping conversations last year. Additionally, Reddit said “84% of shoppers say they feel more confident in their decisions after researching on Reddit.” This suggests that shopping could be a high-velocity channel for Reddit to target, leveraging these conversations and contextually-rich data to increasingly drive higher conversions and ROAS for advertisers. 

For Max, Reddit is seeing strong adoption from advertisers, explaining that “customers have been really willing to make the conversion [and] they're very pleased with the CPA benefits that they're seeing out of the gate, which is great. And I think what this opens the door for us to do is to have faster adoption of our new performance features.” Reddit added that about 50% of Max advertisers are using AI-powered creative tools to drive stronger performance.  

The shopping strength is also visible within its Dynamic Product Ads (DPA), which launched a year ago to bring Reddit-unique content to the shopping journey. Reddit highlighted Liquid IV, which noted DPA has already generated 33% of its total platform revenue despite being a newer ad placement, while outperform other conversion campaigns by 40%.   

Similar to Max, it remains early in the journey for DPA. However, Reddit’s ability to deliver >90% higher ROAS YoY on average for brands, combined with upcoming levers such as adding more data to models, improving ad relevancy and personalization, and leveraging partnerships with Shopify and WooCommerce to onboard more advertisers could make DPA another potential growth catalyst.  

Driving Growth with Low Ad Load  

Surprisingly, Reddit is driving its current growth and Q1’s marginal acceleration in ARPU with low ad loads, implying that the company has not reached its full monetization potential. For one, Reddit could gradually begin to increase ad loads to similar levels as peers like Meta, or begin to integrate ads across more features within its site such as its new AI search tool Answers (not currently there).  

However, Reddit does not plan on increasing ad load in the near-term, instead preferring to focus on increasing ad relevancy, growing active advertisers, and increasing ad performance, all key levers in driving conversions and ROAS higher and increasing the stickiness of its platform: 

“Ad load overall is still quite low compared to peers, especially if you look at it just on a feed-to-feed basis, it's still substantially lower and overall on Reddit, we actually don't even have ads in certain high growing surfaces like Search, for example. So overall, I actually feel comfortable on an absolute basis of the ad experiences, there actually is not a high ad load. 

But that aside, we test this all the time, and I think we're very thoughtful about it. As you increase the ad relevancy, which we do through our ML work and we increased the diversity of advertisers in our marketplace, which we're doing. We said we're growing active advertisers, 75% year-over-year. That actually helps with enabling, if you were to move the ad load lever like giving you the diversity to still maintain performance. 

So just know that there are other levers that we focus on more than a lot, like our strategy is not to increase ad load. Our strategy is to grow users, all the things that Steve talked about, where we think we have a 10x opportunity there and to make the value of every impression more valuable through more competition and diversity, through stronger optimization and hard marketing outcomes, more clicks, more conversions, more installs per impression.” 

As Reddit executes on its user growth ambitions, impressions will likely grow in tandem, so if Reddit began to pull the lever on increasing ad load in the future, ad revenue growth could begin to compound.  

Financials 

Q1 Revenue Grows 69.1% YoY, beat estimates by 8.3% 

Reddit reported Q1 2026 revenue of $663.4 million, up 69.1% YoY and beating consensus estimates by 8.3%. It marked the seventh consecutive quarter of greater than 60% YoY growth. On a sequential basis, revenue declined (8.6%) QoQ, consistent with the typical seasonal pattern from Q4 peaks — Q1 2025 also saw an (8.3%) QoQ decline from Q4 2024. The strong revenue growth was primarily driven by 74% YoY growth in the advertising revenue to $625 million. While its other revenue, which includes licensing deals with Google and OpenAI, rose by 15% YoY to $39 million. 

Management guided Q2 2026 revenue in the range of $715 million to $725 million, implying YoY growth of 44.1% and QoQ growth of 8.5% at the midpoint, beating guidance by a marginal 0.6%. It represents a sequential re-acceleration on a QoQ basis. Management did note that there was some geopolitical volatility in the backdrop, with some of its advertisers shortening spending cycles and shifting month to month now, though they expect little impact from this. 

For the full year 2026, consensus currently estimates revenue of $3.14 billion, implying 42.7% YoY growth — a figure that may be revised upward in light of the Q1 beat. 

Advertising Revenue Up 74% YoY 

Advertising revenue, which constitutes the vast majority of Reddit’s top line, was $625 million in Q1 2026, up 74% YoY and down (9%) QoQ. The sequential decline was due to seasonality. This represented the sixth consecutive quarter of 60% or above advertising revenue growth, demonstrating the resilience and compounding nature of Reddit’s ad monetization engine. 

Revenue growth in Q1 was driven by a combination of both impressions and pricing growth. The company’s investments in the ad stack, including machine learning for signal optimization and ad formats, combined with the go-to-market strategy are also delivering meaningful outcomes for advertisers and driving robust growth in new advertisers. 

In Q1, conversion-driven lower-funnel revenue remained a key area of strength, delivering triple-digit YoY growth. Performance-oriented revenue represented over 60% of total ad revenue in Q1, and was well balanced across verticals with strength in retail CPG, technology, and media & entertainment, with “significant headroom for growth.”  

ARPU Grew by 44%, a Slight Acceleration 

User monetization metrics continued their strong trajectory. Global ARPU reached $5.23, up 44% YoY and down (13%) QoQ (again, seasonally expected). U.S. ARPU was $9.63, up 54% YoY, while International ARPU was $2.02, up 51% YoY, reflecting the rapid scaling of Reddit’s international ad business. Overall, this marked a slight acceleration from 42% growth in global ARPU in Q4.  

Margins: Strong Gross Margins; Operating Leverage Delivering 

Reddit’s gross margins remained elevated in Q1 2026, with gross profit of $607.1 million representing a gross margin of 91.5%, relatively stable sequentially from 91.9% in Q4 2025 and expanding 90 basis points YoY from 90.6% in Q1 2025. This marks the sixth consecutive quarter of gross margins above 90%, confirming the structural strength of Reddit’s software-based business model. 

Operating margin was 27.6% in Q1 2026, with operating income of $182.9 million — down from 31.9% in Q4 2025 (reflecting seasonally lower Q1 revenue) but improved significantly from 1.0% in Q1 2025. This demonstrates powerful year-over-year operating leverage, with operating margin expanding 26.6 percentage points YoY. 

Net margin similarly expanded to 30.7%, up from 6.7% in Q1 2025, with net income of $204 million. For context, in Q2 2024 Reddit reported a net loss of ($10.1 million); the company has fully transitioned to consistent GAAP profitability over the past seven quarters. 

Q1 adjusted EBITDA grew by 130.7% YoY to $266 million and came in well ahead of the management guidance of $215 million. Adjusted EBITDA margin improved by 10.7 percentage points YoY to 40.1% and beat the guidance of 35.8%. Management has guided adjusted EBITDA margin of 40.3% in Q2, implying a YoY improvement of 6.9 percentage points.  

Reddit’s Rule of 40 score (revenue growth plus adjusted EBITDA margin) came in at 109% for Q1 2026, up from 91% in the same period last year and down from 115% in the previous quarter. 

EPS: 677% YoY Growth, Beats by 79.1% 

GAAP EPS for Q1 2026 was $1.01, beating consensus estimates of $0.56 by 79.1% primarily driven by strong operating leverage. It grew by 677% YoY from $0.13 in Q1 2025.  

Analysts expect GAAP EPS to grow by 83.8% YoY to $0.83 in Q2 and 42.5% YoY to $1.14 in Q3. 

Cash Flows and Balance Sheet 

Cash flows were extremely robust in Q1 2026 primarily driven by higher profits.  

• Operating cash flow was $312.3 million, representing a 47.1% margin and up significantly from $127.6 million or 32.5% margin in Q1 2025.  
• Free cash flow was $311.2 million for a 46.9% margin, compared to $126.6 million or 32.3% margin in Q1 2025 — nearly a 2.5x increase in free cash flow YoY. 
• Reddit’s balance sheet remains fortress-like. The company exited Q1 2026 with $2.77 billion in cash and marketable securities, up from $2.48 billion at end of FY2025, and carries zero debt.  
• Management noted that share repurchase activity was modest in Q1, with approximately 35,000 shares repurchased or $5.0 million worth of shares, leaving $995 million remaining on the $1 billion buyback authorization announced during Q4 2025 results. This authorization provides meaningful capital return flexibility as Reddit’s cash generation accelerates. 

Conclusion 

Reddit has strong fundamentals that are mixed come Q2 as the company approaches slower growth combined with dropping user metrics that Wall Street would prefer to have visibility into. There are typically many paths to growth when you own the data layer – whether it’s through Max, data licensing, or another avenue like adding Shopping ads to leverage its rich user data in the era of AI. 

There are two key things investors should know – the first is, we are in a period of speculation as to whether Reddit can re-accelerate its growth. Secondly, the valuation is already discounting the lower revenue growth (and then some). Therefore, how we play this stock will require technicals. It’s not the strongest stock in our portfolio, but it’s one of the cheapest combined with a strong, bottom line.

Damien Robbins, Equity Analyst at I/O Fund contributed to this analysis.

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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• The I/O Fund’s Top 15 Stocks for Q2 2026

AppLovin’s fundamentals remained strong in this earnings report, yet negative sentiment continues to build. There is no material evidence that market concerns are playing out, yet regardless, the market has a new set of concerns around AI-driven ad competitors, following previous concerns on short seller reports and SEC probes. 

Sticking to the facts, the company reported very strong growth of 66% YoY and 18% QoQ for revenue of $1.66 billion. On a sequential basis, AppLovin accelerated from 11.6% QoQ last quarter though YoY was down about 230 basis points. Looking into Q1, the company is guiding for growth of 6.2% QoQ on a higher revenue base of $1.66 billion compared to 16% QoQ growth in Q1 last year on a lower revenue base of $999.5 million. The Q1 revenue guide beat estimates by a solid 3.5%. 

Adjusted EBITDA margin of 84% was up 700 basis points from last year and up 200 basis points QoQ. This makes for a Rule of 40 of 150, which is higher than Palantir and Cloudflare.  

You will be hard pressed to find any issues with the earnings report, yet just as Applovin was beginning to overcome the negative spin from short sellers, a slew of AI-driven competitors launched recently. There were plenty of discussions around Applovin’s positioning, detailed for you below.

AppLovin is a Shark in Sharky Waters: 

By definition of being an ad platform, AppLovin is in sharky waters. There is far more competition among advertising platforms than what public investors may realize – the ecosystem is into the thousands 

However, AppLovin is top dog (or top shark) in many regards, especially when it comes to gaming for sure, and also when it comes to independent ad platforms. The weak price action as of late is because the waters have become more crowded.  

Here is what I had stated last quarter, noting the stock is not for the faint of heart: 

“AppLovin operates in shark-infested waters as one of the few companies over the past decade to challenge the walled gardens of Meta and Google. While the company’s fundamentals are exceptional, the presence of an SEC probe—discussed below—adds complexity, contributing to sharp swings in both directions.” 

There are three primary developments that complicate AppLovin’s moat, which the market is grappling with. I’ll go in order of least concerning. 

Google’s Project Genie 3 

Google recently announced Project Genie 3, which offers AI-driven automation for ads by relying on AI agents for campaign setup and optimizations. If we look more closely, Genie is more about workflow automation whereas Applovin emphasizes performance as it’s built on a very large data set of 1+ billion users. The end goal is fundamentally different as Project Genie offers automation of ad operations (so, reducing workforce is the most likely outcome) compared to Applovin’s Axon which is focused on marginal improvements in ad performance by continuously training models to optimize ROAS (return on ad spend) and LTV (lifetime value). 

Here is how it was described on the call: 

“But right now, we're seeing somewhere around day 30 LTV to cost of user acquisition. So if you think about lead gen models and if you know lead gen models and also if you understand the life of value that we create for advertisers, which is in the many years, to be able to break even on the media buy in 30 days is exceptional. We've got arguably one of the best business models the world has ever seen, and we're seeing the ability to market our platform and small testing at that level.” 

For reference, 30 days LTV to CAC (customer acquisition cost) is exceptional as many direct-to-consumer brands consider 3 months as ideal for fast growth and 6 months acceptable. 

CloudX: 

CloudX is a startup founded by an AI executive heavyweight who previously founded MoPub and MAX (which was later acquired by AppLovin). Rather than competing with Applovin on the demand/advertiser side, this newly launched startup is targeting the publisher/supply side.  

As it stands, Applovin works with the world’s largest gaming publishers and is adding e-commerce sites. Where CloudX hopes to attract those publishers is by offering AI agents to offload time-intensive busywork of integrating multiple software development kits (SDKs), mediation layers and custom bidding logic. This level of work represents entire teams on the engineering side, and also can quickly improve time-to-deployment for trying new ad products and demand partners.  

On the topic of demand partners, CloudX stated the following in their public announcement: “Four months ago, CloudX launched with three demand partners and a handful of publishers. Today, we're generally available with seven bidders: Meta, Unity, Liftoff, Magnite, InMobi, Mintegral, and Moloco. All competing in the same verified auction. At the same time, we’ve been hard at work adding the publisher features that our first batch of customers have been asking for. We put together a quick demo video to give you an idea of the power of our Monetization as Code and Agentic enabled approach.”Monetization as Code and Agentic enabled approach.” 

However, performance parity is not guaranteed as AppLovin has a formidable dataset – in fact, it’s likely the most attractive dataset outside of Big Tech with over 1 billion users. CloudX has a lot to prove, especially given AppLovin can provide a 30-day LTV to CAC.   

Here is what was stated about CloudX on the call: 

“So in a world where Cloud X becomes a start-up that comes into the space, you have to talk about like what are they walking into? How is the world different today versus what it was? The moat around our mediation is not because of the mediation. We're very good. We've got the most bid density. In any mediation A/B test, if you talk to publishers, you'll hear MAX does better. But we don't blow it out of the water. We're a few percentage points better than other mediations. If someone wanted to pay a bonus to cover that, they could potentially pay a bonus to cover that.  

Where it gets really expensive for the publisher and where we're really locked in is that we have the best advertising solutions on the market. In fact, for a lot of these publishers, we're over 50% of all their user acquisition spend. They can't go get that anywhere else. If they go off MAX, that decays. And so they're left in a world where they have the best buying tools. They have the best monetization tools. It becomes a really strong 360 solution and their growth depends on it.  

And then the MAX ecosystem is not growing slow, as we've talked about in prior calls, this is a double-digit, very strong growing category where these publishers are seeing their businesses improve because of the improvement in our technology. When you've got that in the foundation and you've got a really strong moat with technologies that no one else can replicate or have, then you end up with a sticky solution, and we're very confident our solution is just that.” 

Meta: 

The I/O Fund has been quite vocal about Meta’s strength among the Mag 7 given Advantage+ is reporting a $60 billion annual run rate. Conversely, the market is concerned that Meta’s capex-fueled push into AI-driven ad automation will breach Applovin’s moat.  There has not been a formal announcement that Meta is focused on gaming inventory or no-ID inventory, yet analysts are growing concerned this is inevitable given the company’s aggressive push to integrate more AI features into ad optimization and targeting.  

In November, Meta announced they had optimized campaigns for 29% higher return on ad spend (ROAS) compared to a 12% improvement earlier in the year. The press release stated, “the gaming sector shows particularly strong adoption” with many of the top global gaming studios commenting on the improvements.  

Meta received most of the analyst questions given they pose a more substantial threat in terms of data and budget for AI initiatives, plus more direct overlap given their Audience Network ad platform is aimed at attracting publishers. 

There were many questions about Meta, but this one was the most important, in my opinion: 

“Five years ago, when Meta was really big in the space, and I think this is what's throwing people off. People recall a time Meta was half the space. They think it's going to be half the space again. Meta has been on IDFA-based and Google ad ID-based traffic since that no IDFA change. Nothing has changed for them. What's changed in the marketplace is that the other ad platforms that are built for this category, Unity, Liftoff, Moloco, et cetera, have gotten better.  

Now we've got the best. AXON 2 was the biggest breakthrough in a model in this category period, and we were able to end up becoming the #1 by a lot. AXON 2 didn't exist five years ago. So there's no world where Meta is going to end up becoming that kind of a dominant player in the face of this competition. In fact, I don't see a world anyone else can because they're going up against that dominance. And these models, as they build more data, it's a closed-loop model that's continuously reinforcing itself and getting smarter. 

Our model is so far into getting smart for this niche. The niche isn't that small, and we've got such a strong position. It's highly unlikely that someone else is going to come in and materially disrupt it. So a long way of saying, again, no, we don't see what people are so afraid of. We think psychologically, people just index on numbers from five years ago and think, oh, Meta is going to ramp to that. But just ask the customers you talk to, what's the share of wallet between us to them and to everyone else on IDFA-based traffic, and that will give you an indicator of how good we are.” 

Financials 

By Royston Roche 

Q4 Revenue Growth of 66% 

AppLovin’s Q4 revenue grew by a stellar 65.9% YoY and 18% QoQ to $1.66 billion, beating estimates by 2.9%. The strong revenue growth was primarily driven by continued strength in the gaming advertising revenue, seasonal strength, and the contribution of e-commerce revenue. Management has guided Q1 revenue of $1.745 billion to $1.775 billion, implying a YoY growth of 51.9% YoY and 6.2% QoQ at the midpoint. The Q1 revenue guide beat estimates by a solid 3.5%. 

The company’s co-founder, Adam Foroughi, said in the earnings call, “Our performance, our business is executing extremely well. We continue to grow very quickly despite the numbers getting much bigger. We delivered strong growth in Q4. And despite typical seasonality where Q1 should be softer than Q4, we are guiding to meaningful sequential growth. That reflects both continued strength in gaming and the scaling of our e-commerce and our self-service customers.” 

Full year 2025 revenue grew by 70% YoY to $5.48 billion. Looking ahead, analysts expect revenue to grow 43.7% YoY to $7.87 billion in 2026 and 28.1% YoY to $10.08 billion in 2027. 

Q4 Operating Margin of 77% 

AppLovin’s margin expansion is truly outstanding, primarily driven by strong operating leverage. The company’s AI-powered advertising engine, AXON 2.0, launched in Q2 2023, serving as a game-changer that drove strong revenue and profits. 

• Q4 gross profits grew by 74.3% YoY to $1.47 billion with a gross profit margin of 88.9%. The gross profit margin was up 420 basis points YoY and 130 basis points sequentially.  
• Q4 operating income grew by 103% YoY to $1.275 billion, driven by solid operating leverage. The company’s operating margin improved by 1400 basis points YoY and 10 basis points sequentially to 76.9%.  
• Q4 net income grew by 84.9% YoY to $1.10 billion. Net profit margin improved by 690 basis points YoY to 66.5%. 
• Adjusted EBITDA grew by 81.7% YoY to $1.40 billion with an adjusted EBITDA margin of 84%, up by a solid 700 basis points YoY and 200 basis points sequentially. Management Q1 adjusted EBITDA guide is 84%, up 300 basis points YoY and flat QoQ. 

• 2025 operating margin improved to 75.8%, from 59.3% in 2024. 
• Net profit margin improved to 62.6%, from 49.3% in 2024. 
• Adjusted EBITDA margin improved to 82%, from 75% in 2024. 

GAAP EPS grew by 88% YoY 

Q4 GAAP EPS grew by 88.4% YoY to $3.24 primarily driven by strong operating leverage. The EPS beat the analysts estimates by a solid 10.1%. Analysts expect strong growth to continue with Q1 EPS expected to grow by 97.9% YoY to $3.30 and Q2 EPS to grow by 49.2% YoY to $3.57. 

Looking ahead, analysts expect 2026 EPS to grow by 59.3% YoY to $15.53 and by 26.6% YoY to $19.65 in 2027. 

Q4 Free Cash Flow Grew by 88% 

The company has an exceptionally strong cash flow margin profile, primarily driven by strong profits.   

• Q4 operating cash flows grew by 87.4% YoY to $1.314 billion with a margin of 79.2%, up 910 basis points YoY. 
• Q4 free cash flows grew by 88.3% YoY to $1.31 billion with a margin of 79%, up 1370 basis points YoY. 
• The company’s cash improved to $2.49 billion, up from $1.67 billion at the end of the previous quarter. While debt remained the same at $3.51 billion.   
• The company repurchased and withheld 800,000 shares, valued at $482 million. For the full year, the company repurchased about 6.4 million shares for $2.58 billion, funded entirely by free cash flows. Over the last four quarters, the company reduced the outstanding shares from 346 million in Q4 2024 to 340 million. The remaining share repurchase authorization is $3.28 billion at the end of Q4 2025. 

Conclusion: 

In terms of number of competitors, Applovin operates in the sharkiest arena across the tech sector. Concerns around Meta, CloudX and IDFA dynamics are narratives that are not showing up in the fundamentals. What Applovin offers is performance at scale and a real data advantage that only Meta can rival. Even with Meta rivaling Applovin across many publishers, Applovin contends they have the gaming category cornered and are now expanding into e-commerce. The most likely end result is that most publishers will use both. 

In the Top 15 report, I led with the cautionary sentence that “AppLovin is a stock that needs a strong technical analysis overlay” as App’s fundamentals argue there is real staying power, but the stock will continue to demand patience and disciplined timing.

Royston Roche, Equity Analyst at I/O Fund contributed to this analysis.

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 APP at the time of writing and may own stocks pictured in the charts.

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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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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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