Reddit’s Q2 revenue jumped 61% to $805M, net income nearly tripled to $253M. Shares fell 9% after-hours as CEO flagged choppy Google traffic.
Reddit Crushes Q2 Estimates, Issues Strong Guidance — But Shares Slide on Google Traffic Concerns
Reddit delivered one of its strongest quarterly performances since going public, posting second quarter results that decisively beat Wall Street’s expectations on every major metric, while also issuing forward guidance that outpaced what analysts had been modeling for the current quarter. Despite the strength of the report, shares fell roughly 9% in after hours trading, a reaction that had less to do with the numbers Reddit actually delivered and more to do with lingering unease over the company’s dependence on Google for search driven traffic.
The headline figures alone tell a story of a business firing on most cylinders. Reddit earned $1.25 per share for the quarter, far surpassing the 95 cents analysts had expected, a gap large enough to represent one of the more significant earnings beats among major internet companies this earnings season. Revenue came in at $805 million against a consensus estimate of $730 million, meaning the company beat expectations by nearly $75 million. That revenue figure represented 61% growth compared to the $500 million Reddit generated in the same quarter a year earlier, continuing a pattern of extraordinarily consistent growth that has now persisted for eight consecutive quarters at a rate above 60%. Sustaining that kind of growth rate for two full years running is unusual for a company of Reddit’s size, and it suggests the business has found durable levers rather than a temporary post IPO bump.
Profitability improved just as dramatically as revenue. Net income came in at $253 million for the quarter, up sharply from $89 million in the prior year period, meaning the company nearly tripled its bottom line year over year. Earnings per share rose to $1.25 from 45 cents a year earlier. That kind of margin expansion, happening alongside continued heavy top line growth, is typically what investors look for as a sign that a company’s business model is scaling efficiently rather than simply buying growth with spending.
Reddit’s guidance for the third quarter extended the optimistic picture. The company told investors to expect revenue between $860 million and $870 million, comfortably ahead of the $828 million analysts had penciled in. On the earnings side, Reddit guided to adjusted earnings between $385 million and $395 million, again outpacing the $368 million Wall Street had projected. Guidance that beats consensus is often treated by markets as one of the more reliable forward looking signals in an earnings report, since it reflects management’s own visibility into bookings and advertiser demand rather than backward looking results.
Behind the financial numbers, Reddit’s underlying user metrics also came in ahead of expectations, reinforcing that the revenue growth is tied to real audience expansion rather than pricing alone. Global daily active unique users, the metric Reddit refers to as DAUq, rose 18% year over year to 130.3 million, edging past the 129.9 million analysts had forecast. In the United States specifically, daily active unique users grew 6% to 53.2 million. Average revenue per user landed at $6.18 on a global basis, while the more mature and heavily monetized U.S. user base generated $11.85 per user, illustrating the wide gap that still exists between Reddit’s international and domestic monetization efficiency, and hinting at further room for growth as international ad products mature.
One category worth highlighting separately is what Reddit calls its Other revenue line, which captures the company’s data licensing business. That segment grew 24% year over year to $43 million. This is the part of Reddit’s business built around licensing the platform’s enormous trove of user generated conversation and community data to outside companies training large language models and AI systems. Reddit’s two biggest data licensing partners are OpenAI and Google, both of which pay Reddit for structured or bulk access to its data for AI training purposes. While still a relatively small slice of total revenue compared to advertising, this segment has become an important secondary growth engine and a symbol of how Reddit has positioned itself as a valuable data supplier in the broader AI ecosystem, distinct from being purely an advertising company.
Reddit’s core ad business continues to be the primary growth driver, and the company attributed much of the quarter’s strength to continued expansion overseas, an influx of new users onto the platform, and ongoing improvements to its advertising technology stack, which has been steadily catching up to the sophistication of more mature platforms like Meta’s ad systems. That improvement cycle has been a multi year effort at Reddit, aimed at making its ad targeting and measurement tools more attractive to performance focused advertisers who have historically favored platforms with more mature ad infrastructure.
Even with all of that strength, the market’s reaction was shaped heavily by comments Reddit made about the unpredictability of search referral traffic, specifically traffic driven by Google. CEO Steve Huffman addressed this directly in his investor letter, writing that search referrals were choppy during the quarter and that traffic became more volatile as the quarter progressed. He was careful to frame this as a narrower issue rather than a threat to the overall business, writing that the bigger picture remains unchanged, that the commercial business is strong, that Reddit’s revenue growth remains differentiated from peers, and that there is much to be encouraged by on the product side. Still, investors have clearly been sensitized to this issue, and the stock’s after hours decline suggests the market weighted Huffman’s caution about search traffic more heavily than the otherwise strong headline numbers.
This sensitivity did not emerge in a vacuum. Concerns about Reddit’s increased reliance on Google traffic have been building for some time, as Google has increasingly shifted search behavior toward AI generated overviews and its Gemini powered conversational search experience, both of which tend to reduce the number of users who click through to the original source, in this case Reddit threads. Earlier this month, Reddit shares tumbled after the Wall Street Journal reported that the company was weighing whether to cut off Google’s access to its data entirely, a dramatic potential escalation in the tension between the two companies. That same report noted that other publishers, including USA Today and Politico, have voiced similar frustrations about declining referral traffic as Google’s AI features expand across search results.
At the time of that report, a Reddit spokesperson told CNBC that the company was approaching its negotiations with Google the same way any business should, by focusing on what is best for Reddit. Huffman elaborated further on the earnings call, saying that when it comes to AI Overviews specifically, Reddit and Google have not yet arrived at an arrangement that works well for both sides, though he characterized the relationship as still collaborative and said the two companies are continuing to look for that kind of mutually beneficial outcome. He was careful to note that he does not view the situation as reducible to a simple binary choice, suggesting Reddit is exploring a range of possible approaches rather than facing an all or nothing decision about whether to keep working with Google.
The timing of Reddit’s report adds another layer of context. It landed just one day after Meta reported its own second quarter results, which showed revenue growth of 28% year over year, also beating analyst estimates. However, Meta’s stock fell sharply following its report, driven by weaker than expected forward guidance and concerns about the company’s cash flow, which has been increasingly consumed by massive spending on artificial intelligence infrastructure. Reddit’s financial position stood in fairly sharp contrast on that front. The company more than doubled its free cash flow during the quarter, growing it to $261 million from $111 million a year earlier, a sign that Reddit has so far managed to keep its own AI related investment spending relatively restrained compared to a company like Meta, even as it continues to build out AI focused products and licensing relationships of its own.
Taken together, the quarter paints a picture of a company posting genuinely excellent financial results almost across the board, tempered by a market that remains wary of a single external dependency, namely how much of Reddit’s traffic and long term growth trajectory could be shaped by decisions Google makes about the future of search.
vimal kumar