Reddit's sales jump 53%, but it warns daily users may fall

Reddit hosts topic communities where people post and comment, and it sells ads against that traffic. Ads brought in about 94% of its revenue in 2025, and its ten largest advertisers about 21%.¹ It counts its audience in daily active uniques, meaning anyone who visits the site or opens the app at least once in a 24-hour period. It tracks average revenue per unique, which is a region's quarterly revenue divided by those daily users.² The company says it relies in part on search engines such as Google for traffic, and it warns that AI-written summaries in search may make people less likely to click through to Reddit.³

Not every visitor is worth the same. Reddit calls logged-in and app users its most engaged and monetizable users, and the letter says they bring in over 80% of the monetization on Reddit.¹ Much of the user growth has come from people outside the United States, who are worth far less: international revenue per daily user was $2.43 in the third quarter, against $13.82 at home.²

Reddit has made a profit every quarter since the third quarter of 2024, and its revenue over the last 12 months passed $3 billion.¹ At $101.9 a share, its 193.1 million Class A and Class B shares were worth about $19.7 billion.² Chief executive Steve Huffman can vote about 75% of the voting power, and Advance, a related party, holds about 22% of the shares. Among outside funds, BlackRock reported 7.3% of the Class A stock as of September 30, while Baillie Gifford's stake fell to 4.85%, under the 5% reporting line.³

The user slowdown did not start this quarter. In the second quarter, global daily users grew 3% from the first quarter while American users stayed about flat.¹ Reddit had also said it would stop reporting the logged-in and logged-out split starting this quarter, but it kept reporting it after all.² Shareholders sued in June 2025, claiming the company misled them about the impact of Google Search and its AI Overviews feature, and a court dismissed that complaint on August 13, 2026 with leave to amend. In August Reddit also said it expected to name Paul Cappuccio as its new chief legal officer.³

The stock was already sliding before the report. In our price file it closed at $160.01 on October 12 and $134.6 on October 28, and it traded at $129.94 a minute before the October 29 close.¹ That day Alphabet, the company behind Google, had a historic drop after it reported weaker summer growth than analysts expected. Its Class A stock traded at $283.56 near the close, against $325.37 the day before.² Reddit's own 3.5% slip that day, from $134.6 to $129.94, came before its results were released after the close.³

On October 29, 2026, Reddit put out its press release and shareholder letter for the quarter ended September 30. Revenue was $895 million, up 53%, which beat the top of its own $860 million to $870 million forecast by $25 million.¹ Ad revenue of $847 million grew 54%, as the price of ads rose about 34% and the number of ads shown rose about 15%.² Adjusted EBITDA, the company's profit measure before interest, taxes, depreciation and stock-based pay, was $402.3 million, up 70% and above its $385 million to $395 million forecast. Net income was $283 million, a 32% margin.³

The audience numbers were weaker. Daily users averaged 130.3 million, up 12% from a year earlier but the same as the second quarter's 130.3 million.¹ The quarterly report says global users were flat from the second quarter because 3% growth outside the United States was offset by a 5% drop at home, and it blames mainly third-party search engine changes.² Against a year earlier, American daily users fell 2% to 50.7 million and logged-out American users fell 4% to 27.3 million, while international users rose 24% to 79.6 million.³

Then came the warning. The letter says search referral traffic was down meaningfully in the quarter, with the decline speeding up late, and that the declines continued into the early part of the fourth quarter.¹ During October, search traffic dropped by more than 1 million referrals a week on average. If that pace continues, Reddit says, total daily users could fall in the fourth quarter by a low-double-digit percentage from 130 million.² The letter says some of the damage reaches logged-in and app traffic too, because search is a common way users come back.³

Reddit's own case is that its money comes from its best users. It grew app and logged-in users from the second quarter, and the letter says those users bring in over 80% of the monetization on Reddit.¹ American revenue per daily user rose 53% to $13.82, and the fourth quarter is usually the year's strongest.² The company's goal for the fourth quarter is revenue of $1,000 million to $1,030 million, about 38% to 42% above the $725.6 million of a year earlier, and Adjusted EBITDA of $480 million to $510 million, a margin of about 49% at the midpoints.³ That is still a slowdown from 61% growth in the second quarter and 53% in the third, and the company says the guidance carries significant risks and uncertainties.⁴ Further out, Reddit plans to shift to a logged-in-only experience to keep new visitors, starting with full tests in select markets outside the United States this quarter. Its quarterly report says some form of log-in restriction is planned globally, including in the United States.⁵

The profit is backed by cash. Operating cash flow was $363.8 million in the third quarter, ahead of net income, and free cash flow, which is operating cash flow minus equipment purchases, was $362.6 million.¹ Adjusted EBITDA sits $119 million above net income of $283.3 million mainly because it leaves out $136.4 million of stock-based pay and related taxes. That stock pay equals about 15% of revenue, and it is a real cost that shareholders bear through new shares.² Income tax was just $5.8 million in the quarter, and Reddit had about $1.7 billion of federal tax losses to carry forward at the end of 2025.³ The quarterly report says a large part of Reddit's tax valuation allowance could be released within 12 months, which would produce a significant one-time tax benefit. That would lift reported profit in that quarter without adding cash.⁴

The balance sheet is strong. Reddit ended September with $1.36 billion of cash and $1.68 billion of marketable securities, $3.03 billion in all, against total liabilities of $380 million.¹ Its $500 million revolving credit line, a standby loan it can draw on, had $494.3 million available. The line is secured by nearly all of Reddit's assets and carries a maximum leverage ratio, and Reddit was in compliance with all covenants.² With far more cash than debt, leverage and interest cover are not a concern, and Reddit earned $26.8 million of net interest income in the quarter.³ The bigger fixed bills are cloud contracts: $880 million to Amazon Web Services from July 2026 to June 2029, and $580 million to Google from September 2026 to August 2029. That is $1.46 billion in all, against about $1.2 billion of free cash flow over the last 12 months.⁴

Reddit had 146.9 million Class A and 46.2 million Class B shares on October 28, and 206.3 million on a fully diluted basis, which adds options and stock awards.¹ The gap is mainly 9.6 million options with an average exercise price of $41.73, far below today's price, and 3.6 million restricted stock units. Class B shares carry ten votes each and Class A one, so ordinary holders have little say.² In the third quarter Reddit spent $100 million to buy back about 670 thousand shares at an average of $149.81, and $340.0 million so far in 2026, under a $1.0 billion program with $660.0 million left. What is left equals about 3% of today's market value.³ Shareholders gave up cash for a smaller share count, but the stock now trades about 32% below the third-quarter buyback price.⁴

Two executives sold stock in mid-October, but each sale matched a same-day option exercise, so their holdings did not change.¹ In mid-October Huffman exercised 17,308 options at $25.29 and sold the same number of shares at $155.33 to $163.72, and chief operating officer Jen Wong exercised options on 60,000 shares and sold 60,000 at $148.86 to $155.91, so neither cut their directly held stock; both had adopted Rule 10b5-1 pre-set selling plans in May 2026 (Wong on May 12, Huffman on May 20), though the October filings do not say these sales were made under them.² A September notice for Huffman's trust lists his earlier sales under the plan, each for 18,000 shares, which looks like a steady pre-set schedule rather than one-off selling.³

Other revenue, which grew on content licensing deals signed in 2024 and 2025, was $48.0 million in the third quarter, about 5% of the total.¹ Nearly all of the licensing contract value comes from two partners whose deals are approaching the end of their current terms. Contracts already signed add only $31.9 million for the rest of 2026 and $30.5 million in 2027.² Shareholder plaintiffs filed a second amended complaint on October 23, and Reddit's motion to dismiss is due by November 23. Reddit is also appealing a £14.5 million fine from the British privacy regulator, and it must meet extra European Union platform rules by January 2027.³

The results came out after the October 29 close, and the stock was $101.9 at 08:12 ET on October 30, 21.6% below the $129.94 it traded at just before that close. It had already slipped 3.5% that day from its $134.6 close on October 28, so the fall from that close was 24.3%, against a 1.4% fall in the S&P 500 fund over the same span.¹ At that price Reddit's market value is about $19.7 billion, or about $16.6 billion after subtracting its cash and securities. That is about 12 times its Adjusted EBITDA of $1.34 billion over the last 12 months and about 14 times its roughly $1.2 billion of free cash flow.² Our price file starts in mid-September, so a full-year price range could not be confirmed; its highest close in that file was $160.01 on October 12.³

The bull case: Reddit still expects sales growth of about 38% to 42% with an Adjusted EBITDA margin near 49%, and it holds over $3 billion of cash and securities.¹ Its logged-in and app users, which Reddit calls its most engaged and monetizable, still grew from the second quarter.² At about 12 times trailing Adjusted EBITDA, the price already reflects a good part of the warned drop.

The bear case, most serious first. The audience is shrinking at home and may shrink worldwide by a low-double-digit percentage this quarter, and Reddit itself names AI features in search as a reason fewer people may click through.¹ Ad prices cannot rise forever on a smaller audience, and revenue growth has already slowed from 61% in the second quarter to a guided 38% to 42%. Nearly all licensing value sits with two partners near the end of their terms, and the coming log-in experiments are themselves listed as a risk.²

What would prove the bear case wrong is a fourth-quarter report with a smaller user drop than the warning and revenue inside the $1,000 million to $1,030 million range. What would prove the bull case wrong is a drop deeper than the low double digits or revenue below $1,000 million.¹ Both answers come with the fourth-quarter report; last year's annual report was filed February 6, 2026. Earlier signals are the November 23 motion-to-dismiss deadline and any news on the two licensing deals.²

Reddit held its call on October 29 at 4:30 p.m. Eastern, but we found no transcript, so we do not know what executives said about the size of the user drop or how they plan to respond.

The letter gives the fourth-quarter revenue range and the user warning side by side, but it does not say how much of the warned drop the range already counts.

The quarterly report says the two main licensing deals are approaching the end of their terms, but it does not name the partners or give end dates.

No filing gives the share of daily users who arrive from search engines, the number that decides how deep the drop could go.

The letter names only select markets outside the United States for the logged-in-only tests.