Premium: Reddit Q226

I see a lot to like in Reddit's positioning and deeper monetization via shopping ads. But the market came away highly concerned after its Q2 report, where seasonal weakness in US DAUq combined with mgmt commentary about search referral traffic getting 'choppy'. Then add in the recent WSJ rumors that implied the data licensing renegotiations with Google were going poorly, and the market panicked. The stock fell about 21% the following day.

The rise of “Google Zero” (zero-clickthrough) in AI search summaries has the market far too skittish. The market seems to be assuming that search referrals, an important top-of-funnel acquisition channel for Reddit’s “seekers,” could quickly grind to a halt. However, I believe that Reddit has a lot of sails to tighten or deploy in response to any given discovery headwind. This isn't the first time Reddit has had to tweak some levers after seeing disruptions in search referrals.

Yet as Reddit navigates the storm of its own discoverability (across search referrals, AI citations, and data licensing), I am very encouraged that it continues to significantly improve user engagement and ad performance, as evidenced by the sustained growth in ARPU and ad pricing. As I go through the financials and some new KPIs, I continue to like what I see.

• Q2 saw an expected rebound after Q1, its seasonally weakest quarter.  They delivered their 8th consecutive quarter of over 60% growth, despite a headwind from prior-year overperformance.
• Search referrals became more volatile and US DAUq declined sequentially, triggering the market’s post-earnings panic. Yet overall DAUq still grew +18%, WAUq surpassed 500M, and Reddit continues to improve retention and app adoption.
• Monetization continues to dramatically outpace user growth. Global ARPU grew +36% to a record $6.18. US ARPU increased +51% to a record $11.85 despite US DAUq growing only 6%. The only disappointment for me was the deceleration in Int'l ARPU growth.
• They continue to increase their operational leverage at scale, with every TTM margin hitting record highs.
• Ad pricing is now the larger contributor to growth, up 40% due to improved ad targeting, conversion, and advertiser demand. This signals a major shift toward relying more on model improvements & ad performance to drive advertiser demand rather than expanding ad load and placements.
• The ad platform is moving rapidly down the funnel. Conversion volume more than doubled, click volume grew over 30%, and revenue from DPA & app-install objectives more than doubled.
• Max is gaining significant momentum as Reddit builds its equivalent to Meta Advantage+ and Google PMax. Advertisers using Max increased over 60% sequentially, while MAX revenue grew more than 150%.
• Growth is becoming more diversified. Active advertisers increased over 70%. Int'l revenue rose a record +84%, revenue from mid-market and SMB advertisers doubled, and 11 of Reddit’s 15 advertiser verticals grew more than 50%.
• Reddit is increasingly borrowing from Meta’s playbook, and is now building a more algorithmically driven content feed and expanding native video. Its recommendation algos currently use only a fraction of available user signals and content, leaving substantial runway to improve discovery and user engagement.
• The investment debate now centers on whether search disruption (user acquisition) outweighs Reddit’s improving ad performance, user engagement, automation, and distinctive position between high-intent search and algorithmic social feeds.

COO in AMA: "Reddit Ads are delivering more outcomes at equal or better prices for those outcomes, making us a very competitive option for advertisers."

Since the big drop after Q2 earnings, the stock has had a few brighter moments. One positive development was the advancement of Reddit’s case against Perplexity, after the court denied Perplexity’s motion to dismiss. Another was Reddit’s addition to the S&P 500 on August 18. Yet the company clearly remains in the penalty box thus far in 2026 (-36% YTD), and I think it remains attractive.

COO in remarks: "Reddit's billions of conversations across hundreds of thousands of communities give advertisers a unique way to reach high-intent audiences and drive measurable, consistent returns. In the age of AI, authentic human conversations have become more distinctly helpful, desired, and valuable."