Reddit, Inc. (RDDT) Earnings

Management highlights

- Core Strategic Positioning * As AI-generated synthetic content floods the internet, Reddit positions itself as the leading platform for authentic human conversation, context, firsthand experience, and real community perspectives, filling an unmet consumer demand for trusted information * The company's top priority is growing daily active users (DAUs) to the long-term targets of 1 billion global DAUs and 100 million U.S. DAUs, focused on converting the existing 500+ million weekly active users (WAUs) to daily usage - User Growth and Product Progress * Reddit now reaches over 500 million weekly users globally, including more than 130 million daily users; new app user retention improved 50% YoY on a relative basis, marking significant progress on a key core metric * Product updates including improved feed models, simplified onboarding, easier post placement in relevant communities, and conversion of web users to the higher-engagement app have driven improved retention and engagement * New features including video in comments and interactive games on the Reddit developer platform have expanded upper funnel reach and increased daily repeat usage * Search and Reddit Answers have improved, with the universal in-app search bar growing both searchers and search volume; the platform is now the best place to search Reddit content, with ad integration for search currently in testing - Advertising Business Performance * The advertising business delivered broad-based strength: conversion volume grew over 100% YoY, click volume grew over 30% YoY, active advertisers grew over 70% YoY, and scaled channel revenue (mid-market and SMBs) doubled YoY; strength was seen across retail, travel, and 11 of 15 total industry verticals * Reddit Max (automated ad platform) private beta grew advertiser count over 60% quarter-over-quarter (QoQ) and revenue over 150% QoQ, with new features added for app install objectives and AI tailored creative that improves ad performance; the platform will soon be expanded to all advertisers as the primary onboarding experience for SMBs * Upper funnel growth was led by video ads: six-second engaged video ad revenue more than doubled YoY, delivering over 130% higher view-through rate, 70% higher completion rate, and 80% lower cost per view than standard formats * Lower funnel performance: Max app install beta delivered a 15% average reduction in cost per action and 28% increase in results volume; an alpha test of new shopping listing ads launched to match multi-advertiser product catalogs with high-intent organic shopping conversations, which grow 40% YoY on Reddit * Measurement improvements: dual attribution launched in beta to provide advertisers with more accurate cross-journey conversion tracking; third-party research confirmed Reddit delivers 1.5x higher ROAS for CPG advertisers and 7x higher ROAS for EMEA retail advertisers than competing social platforms * Ecosystem expansion: Ads API revenue grew over 40% QoQ, over 50% of total revenue now comes from advertiser credit line relationships; the Shopify integration became generally available in May, with over 500 merchant accounts integrated already - Financial Operational Highlights * Reddit delivered its eighth consecutive quarter of over 60% total revenue growth, with most key profit and cash flow metrics doubling YoY; LTM operating cash flow crossed $1 billion for the first time, and the company hit the milestone of $1 million in revenue per employee (LTM) * Gross margin reached 91.3%, up 50 basis points YoY, with incremental revenue and hosting efficiency offsetting higher AI/ML compute costs; adjusted operating expenses were 49% of revenue, down from 57% YoY, delivering consistent cost leverage * The company repurchased $235 million of common stock in Q2, with $760 million remaining on the current repurchase authorization; net dilution remains manageable at just 0.2% YoY

Guidance

- Q3 2026 revenue is guided to a range of $860 million to $870 million, representing 47% to 49% YoY growth, with a midpoint of ~48% YoY growth - Q3 2026 adjusted EBITDA is guided to a range of $385 million to $395 million, representing 63% to 67% YoY growth, with an adjusted EBITDA margin of 45% at the midpoint - Full-year 2026 stock-based compensation (SBC) guidance was revised downward, from the high teens percentage of revenue to the low to mid-teens percentage of revenue, driven by better than expected cost leverage; year-to-date SBC is less than 13% of revenue, down over 1,000 basis points from the first half of 2025 - Full-year 2026 net dilution is expected to come in at the lower end of the company's 1% to 3% targeted range, before accounting for additional share repurchases that would further reduce dilution - Starting in Q3 2026, Reddit will discontinue separate reporting of logged-in and logged-out DAU metrics; the company will continue to report total U.S. and international daily and weekly active users

Segment performance

Total company revenue in Q2 2026 was $805 million, growing 61% year-over-year (YoY). The advertising segment generated $762 million in revenue, growing 64% YoY, representing 94.7% of total company revenue. All other revenue was $43 million, growing 24% YoY, making up 5.3% of total revenue. By geography, U.S. revenue grew 56% YoY, while international revenue grew 84% YoY. U.S. revenue contributes the majority of total revenue, at approximately 77% based on average revenue per user and total user calculations.

Risks & headwinds

- Search referral traffic was volatile and choppy in Q2 2026, particularly late in the quarter, with lower than expected visibility; this volatility is expected to continue as the search ecosystem evolves toward AI overviews, which have not yet delivered the same level of referral value as the traditional 10 Blue Links search format - New app user retention and absolute DAU growth remain well below target even after recent improvements, limiting the company's ability to scale user acquisition marketing spend; the product still requires significant work to improve new user onboarding and understanding of Reddit's value proposition - Feed technology and recommendation models are currently significantly behind industry state of the art, requiring large multi-quarter investments to catch up, and there is no guarantee these investments will deliver the expected increases in user engagement and DAU growth - Data licensing partnership renewal negotiations with major AI and search companies are ongoing, with a wide range of possible outcomes, and no guarantee that current agreements will be renewed on terms that deliver acceptable value to Reddit

Analyst Q&A

• Q: What drove the ad business's strength this quarter, and what should investors understand about current user growth trends? /

  A: Broad advertiser acceptance of Reddit's unique value for authentic, high-intent audience targeting has driven consistent momentum. The company's ongoing investments in ad tools, automation, and measurement have increased advertiser onboarding efficiency, improved performance outcomes, and supported 70% YoY growth in active advertisers. The business is also highly diversified across verticals, geographies, and customer segments, making it very resilient. On user growth, the long-term targets of 1 billion global DAUs and 100 million U.S. DAUs remain unchanged. Product improvements drove a 50% YoY relative improvement in new app user retention, and Reddit crossed 500 million global weekly users, but search referral headwinds offset DAU gains this quarter. The company is focused on controllable product-led growth of direct app users rather than volatile drive-by search traffic.

• Q: What product improvements are driving WAU to DAU conversion, and what is the latest update on data licensing strategy ahead of upcoming renewals? /

  A: Feed improvement is the top priority for increasing user frequency: current Reddit feed models are significantly smaller, slower, and incorporate far less user activity and timeless historical content than industry best practices, giving enormous room for improvement. The company is also accelerating conversion of existing web users to higher-retention app users, with strong early results. On data licensing, there is no material update to strategy, and outcomes are not binary. Reddit's data is valuable for multiple use cases beyond raw AI training data, and the company will pursue any deal structure that maximizes value for Reddit, with a growing market of potential licensees beyond just Google and OpenAI.

• Q: Investors are concerned about weak DAU trends and pressure on logged-out search traffic from AI search shifts. Why is management confident in hitting long-term user targets, and is no renewal with major licensees a possible outcome? /

  A: Management's confidence comes from clear product progress: moving new app user retention 50% higher in a single quarter is a meaningful improvement that will drive sustained growth, and this work is fully within the company's control. While external search traffic is volatile, the business is focused on building a daily destination for direct app users rather than relying on drive-by search traffic. On data licensing, there is a wide range of possible outcomes, and no deal is binary. All potential partnership structures including content placement, training data licensing, and AI overviews are evaluated separately to ensure maximum value and user growth for Reddit, and a non-renewal is a possible outcome if terms are not acceptable.

• Q: How much ARPU growth headroom remains, and how does the company evaluate marketing spend ROI? /

  A: There is substantial ARPU headroom remaining, as the company continues to improve ad performance across all funnel objectives, making every impression more valuable for advertisers. As a two-sided ad marketplace, supply and demand adjust dynamically, so there is no near-term constraint on growth from ad load or auction density. Marketing spend is evaluated with a straightforward short-term ROI model that calculates user acquisition cost against expected user retention, lifetime monetization, and payback period, consistent with industry standard practice. The main barrier to increasing user acquisition spending currently is still below-target new user retention; as product work improves retention, the company will scale marketing spend.

• Q: How should investors think about user quality, given recent sequential DAU declines from lower search referrals? /

  A: Direct app users are worth multiples more than low-quality drive-by search referral traffic, and the company's business is entirely built around repeat direct users. Strong, consistent revenue growth despite search volatility confirms this dynamic: growing the base of high-quality direct users will offset any declines in low-intent search traffic over time. The company is making good progress on converting existing web users to high-value app users and improving retention of new users, and this work is fully controllable regardless of external search ecosystem changes.