Reddit (RDDT): Revenue +61%, Profit Doubled — and the Stock Fell 12%

Reddit, Inc. (RDDT) Q2 2026 — Reddit reported Q2 2026 after the close on July 30. Revenue was $804.9M, +61% y/y — the eighth consecutive quarter above 60% — and roughly $75M above consensus against management's own $715–725M guide. Diluted EPS was $1.25 vs ~$0.96 expected. Net income $252.8M (31.4% margin, +183%). Adjusted EBITDA $342.8M (42.6% margin). Free cash flow $260.7M. GAAP gross margin 91.3%. Ad revenue $762M (+64%); Other revenue, which is the Google and OpenAI data-licensing contracts, was $43M (+24%). Q3 guidance: revenue $860–870M and adjusted EBITDA $385–395M. The stock closed at $178.07 and fell to about $155.80 after hours, a drop of roughly 12.5%, after CEO Steve Huffman wrote that search referrals were "choppy in the quarter, and traffic was more volatile later in the quarter." The beat was real and it was everywhere. What moved the stock was the user table. Global daily uniques rose 18% to 130.3M — but logged-IN daily uniques rose only 7%, and in the U.S. logged-in daily uniques grew 1% (23.1M vs 22.9M). All of the growth was logged-OUT drive-by traffic: +27% globally, +41% internationally. That traffic arrives through search results Reddit does not control. Revenue grew 61% on 18% user growth because ARPU rose 36% to $6.18 — U.S. ARPU rose 51% to $11.85 on 6% user growth. Reddit is monetizing the audience it already has, very hard, very fast. Two more numbers almost nobody flagged: Reddit paid $4.0M of tax on $256.8M of pre-tax income — a 1.6% effective rate — and the accumulated deficit is down to $214.3M from $671.1M six months ago, so that shield runs out within a quarter (fully taxed, this quarter's $1.25 is about $0.98). And Q3 stock-comp guidance of $140–155M against $107M in Q2 means adjusted EBITDA of ~$390M converts to roughly $238M of GAAP operating profit, barely above Q2's $231.7M on $60M more revenue. Finally: this is the last quarter Reddit will report the logged-in versus logged-out split at all. THE CALL: HOLD (3/5, FAIR AFTER THE FALL — NOT YET CHEAP) — base-case value ~$160.0 vs ~$178.07 today. KEY METRICS: - Revenue $804.9M, +61% y/y — 8th consecutive quarter above 60%; beat consensus by ~$75M and management's own $715–725M guide - Advertising revenue $762M (+64%); Other revenue (Google + OpenAI data licensing) $43M (+24%) — just 5.4% of total - U.S. revenue $638.1M (+56%); International $166.8M (+84%) - GAAP gross margin 91.3% (vs 90.8%); operating income $231.7M, a 28.8% margin vs 13.6% a year ago - Net income $252.8M (31.4% margin, +183%); diluted EPS $1.25, basic $1.31 - Adjusted EBITDA $342.8M (42.6% margin, +106%); operating cash flow $261.9M; free cash flow $260.7M; capex $1.1M - Income tax expense $4.0M on $256.8M of pre-tax income — a 1.6% effective rate; fully taxed at 23%, EPS is ~$0.98 - Accumulated deficit $214.3M, down from $671.1M at Dec 31, 2025 — the NOL shield runs out within about a quarter - Stock-based comp $101.0M (12.5% of revenue); SBC + related taxes $106.8M; Q3 guided to $140–155M - DAUq 130.3M (+18%); logged-in DAUq 52.6M (+7%); logged-out DAUq 77.7M (+27%) - U.S. DAUq 53.2M (+6%); U.S. logged-in DAUq 23.1M (+1%); U.S. logged-out DAUq 30.1M (+10%) - WAUq 514.6M (+24%) — crossed half a billion; International logged-out DAUq +41% - ARPU: global $6.18 (+36%), U.S. $11.85 (+51%), International $2.26 (+31%) - Cash + marketable securities $2.79B, zero debt; repurchased 1.5M shares for $235M at an average $157.57 - Diluted weighted shares 202.0M (+1.3% y/y); total fully diluted shares outstanding 207.0M (+0.2%) - Opex: R&D $231.3M (+18%), S&M $195.9M (+62%), G&A $75.7M (+10%), cost of revenue $70.3M (+53%) - Q3 2026 guidance: revenue $860–870M (+47–49%); adjusted EBITDA $385–395M - Reddit will stop reporting the logged-in / logged-out DAU split after Q2 2026 What to watch: What we're watching: evidence the weekly-to-daily conversion is working — new app-user retention was up 50% y/y off a small base, and total U.S. daily users compounding at double digits without help from search would dissolve most of the bear case. The risks: total daily uniques going flat as referrals fade; stock comp outgrowing revenue for a second and third quarter; and the new blended user metric being used to obscure a deteriorating mix. We'd want the low $130s — a genuine ~20% margin of safety — before calling it a buy. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.