Online community and discussion platform Reddit (NYSE:RDDT) beat Wall Street’s revenue expectations in Q4 CY2025, with sales up 69.7% year on year to $725.6 million. On top of that, next quarter’s revenue guidance ($600 million at the midpoint) was surprisingly good and 4.3% above what analysts were expecting. Its GAAP profit of $1.24 per share was 33.1% above analysts’ consensus estimates.
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Reddit (RDDT) Q4 CY2025 Highlights:
- Revenue: $725.6 million vs analyst estimates of $667.5 million (69.7% year-on-year growth, 8.7% beat)
- EPS (GAAP): $1.24 vs analyst estimates of $0.93 (33.1% beat)
- Adjusted EBITDA: $327 million vs analyst estimates of $286.5 million (45.1% margin, 14.1% beat)
- Revenue Guidance for Q1 CY2026 is $600 million at the midpoint, above analyst estimates of $575.2 million
- EBITDA guidance for Q1 CY2026 is $215 million at the midpoint, above analyst estimates of $204.9 million
- Operating Margin: 31.9%, up from 12.4% in the same quarter last year
- Domestic Daily Active Visitors: 52.5 million, up 4.5 million year on year
- Market Capitalization: $28.62 billion
StockStory’s Take
Reddit delivered quarterly results that exceeded Wall Street’s expectations, with the market responding positively to broad-based revenue growth and improving profitability. Management attributed the outperformance to ongoing investments in machine learning-driven ad formats and product enhancements, particularly around user onboarding and search integration. CEO Steven Huffman emphasized that “streamlining onboarding does improve retention,” and credited improved feed relevancy and search capabilities for driving user engagement and monetization. COO Jennifer Wong highlighted that the advertising business saw substantial gains across all verticals, with performance ads and shopping formats contributing meaningfully to growth.
Looking ahead, Reddit’s guidance reflects confidence in scaling automation and personalization initiatives designed to expand advertiser adoption and boost engagement. Management pointed to advancements in AI-powered ad tools, such as Reddit Max, and ongoing enhancements to the shopping ad ecosystem as key levers for sustaining revenue momentum. CFO Andrew Vollero noted the company’s focus on deploying capital efficiently, balancing continued investment in core business, M&A opportunities, and a newly authorized $1 billion share repurchase program. CEO Steven Huffman added, “Making Reddit faster, more relevant, and more accessible to everyone, everywhere, is our top priority as we execute our 2026 roadmap.”
Key Insights from Management’s Remarks
Management attributed the quarter’s results to the successful rollout of AI-powered ad formats, improvements in user product experience, and broader advertiser adoption across verticals and geographies.
- Ad funnel optimization: Reddit’s machine learning investments led to significant growth in both mid-funnel and lower-funnel ad conversions, with click volume up over 60% and conversion volume doubling year over year. Enhanced ad formats, such as dynamic product ads (DPAs), contributed to greater advertiser ROI, especially during peak shopping periods like Black Friday and Cyber Monday.
- Advertiser base expansion: The company reported a 75% increase in active advertisers, fueled by automation initiatives and new tools that simplify onboarding. COO Jennifer Wong stated that Reddit Max, an AI-powered campaign platform, delivered measurable reductions in advertiser costs and increased conversion rates, making it especially attractive to small and midsize businesses.
- Geographic and vertical growth: International revenues outpaced domestic, growing 78% year over year, with U.S. revenue up 68%. Eleven of Reddit’s top 15 industry verticals experienced revenue growth of at least 50%, led by retail, pharma, financial services, and technology. This diversification reduced reliance on any single segment or region.
- Product innovation and search integration: Reddit unified its core search and AI-powered Reddit Answers, driving weekly search users from 60 million to 80 million year over year. The launch of verified profiles for brands and individuals sought to preserve authenticity and transparency, a priority as generative AI content proliferates.
- Leadership and capital allocation: The appointment of Maria Angella Dew Smith as chief product officer was highlighted as a catalyst for faster innovation. Reddit also announced a $1 billion share repurchase program, with management reiterating that capital allocation priorities remain focused on core investment, selective M&A, and opportunistic buybacks.
Drivers of Future Performance
Reddit’s forward guidance is underpinned by plans to scale automation, deepen AI-driven ad optimization, and expand its advertiser ecosystem while navigating evolving engagement and content trends.
- AI and automation expansion: Management intends to broaden adoption of Reddit Max and related automation tools, aiming to streamline campaign creation and optimization for advertisers of all sizes. These efforts are expected to support both revenue growth and operational efficiency as more advertisers leverage Reddit’s community data for targeting.
- Deeper product and search integration: The company plans further investment in personalizing user experiences through AI and machine learning, particularly in onboarding flows and feed relevance. Management believes these improvements will translate to higher retention, increased engagement, and greater monetization opportunities, especially as search and shopping ad formats mature.
- Capital deployment and risk management: Reddit will balance investment in its core platform with potential M&A focused on technology and capability tuck-ins. Management acknowledged that while automation and engagement initiatives show momentum, the evolving landscape around AI-generated content and changing user behaviors presents ongoing operational and reputational risks.
Catalysts in Upcoming Quarters
Looking ahead, our analysts will watch (1) the pace of adoption for AI-powered ad tools like Reddit Max and new shopping ad formats; (2) continued integration of search and user personalization features to drive engagement and retention; and (3) the effectiveness of the company’s capital allocation strategy, including the impact of the $1 billion share repurchase program. Monitoring how Reddit navigates the challenges of AI-generated content and scales its advertiser ecosystem will also be critical to assessing future performance.
Reddit currently trades at $157.60, up from $151.04 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).
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