Reddit Rebuilds To $155 With Revenue Up 61% And A 43% EBITDA Margin — $157.57 Buyback Line Is The Level

Reddit closed Wednesday at $155.26, down 2.94% on the session after opening $159.02 — 95 cents below the prior close — and trading as low as $154.71 by 12:54 p.m. ET. That is the fifth session of a violent stabilisation attempt following the worst earnings reaction in the company's public history.

The sequence is the story. Shares sat in the $200s in mid-July. The Q2 report landed after the close on July 30, and the stock fell 9.85% in the pre-market to $160.50 before collapsing 22.5% to $138.07 intraday and closing July 31 near $140.67. On Monday August 3 it ripped 11.01% to $156.16 as dip buyers revisited the numbers. Wednesday gave back 2.94%.

From the July 31 low at $138.07 to Wednesday's $155.26 is a recovery of $17.19, or 12.45%. From the mid-July level above $200 the stock is still down more than 22%.

The longer-range arithmetic is brutal. The 52-week high sits at $282.95 and the low at $119.27. At $155.26 the stock trades 45.13% below its high and 30.18% above its low, with a $29.87 billion market capitalization on 192,396,510 shares outstanding. Year to date it has lost between 35.4% and 38.8% depending on the measure, against a technology sector up 11.7%.

The one number that keeps long-term holders whole: the IPO priced at $47 and the stock opened at $50.44 on March 21, 2024. Even at $155.26, that is a 207.81% return over two years, or 75.45% annualised. This is a drawdown inside a violent uptrend rather than a broken business.

The technical read is hostile in the near term. The stock trades near the bottom of its 52-week range and below its 200-day simple moving average, and technical composite readings score it as a weak sell. The chart is now a broken momentum play rather than a trend, which demands tighter risk management than the position sizing that worked in the $200s.

Two hundred dollars to $138.07 to $155.26 in three weeks, on a company that beat revenue by 10.2%, beat earnings by 31.6% and guided above consensus. The disconnect between the print and the price is the entire forecast.

The 53.2 Million Number That Erased $8 Billion

One line in the user table did all the damage. U.S. daily active uniques came in at 53.2 million, up 6% year over year — and down from 53.5 million in the first quarter. That is the first sequential decline in five quarters, a drop of 300,000 users, or 0.56%.

Nearly everything else in the report grew. That number went backward, and it explains the entire reaction.

Globally the picture was fine. Daily active uniques rose 18% year over year to 130.3 million, beating the 129.9 million consensus. Weekly active uniques grew 24% to 514.6 million, crossing the 500 million milestone for the first time. Global average revenue per user hit $6.18, up 36% from $4.53 a year earlier. U.S. average revenue per user reached $11.85.

So the market did not sell a user problem. It sold a U.S. user problem, in the market that generates $638 million of the $805 million total, and it sold it because domestic daily active user growth decelerated to 5.8% while the sequential number turned negative.

The valuation mechanics are unforgiving on a stock priced for hypergrowth. At a $29.87 billion market capitalization on 130.3 million daily users, the market pays roughly $229 per daily active user. A single sequential decline in the highest-monetising cohort forces a re-rating of the terminal user number, and the terminal user number is what supports a double-digit sales multiple.

Management's response was to reframe the metric entirely. The co-founder and chief executive argued that product improvements lifted new app user retention by 50% year over year on a relative basis, and that direct high-quality app users are worth multiples more than drive-by traffic. The company is not building for drive-by traffic; it is building a daily destination, and its business lives with direct repeat users and growing that base.

That argument is coherent and it is unverifiable from the outside. A 300,000-user sequential decline paired with a claim that the remaining users are more valuable is exactly the kind of assertion a market pays 10 times sales to believe — or refuses to.

Until the U.S. number turns back up, the multiple stays compressed. That is the operative constraint through the next report.

Revenue At $804.9 Million And An Eighth Straight 60% Quarter

Strip out the user table and this was one of the strongest quarters produced by any mid-cap this earnings season.

Revenue came in at $804.9 million, up 61% year over year from $500 million and beating the $730.3 million consensus by 10.2%. That marked the eighth consecutive quarter of revenue growth above 60% — a streak almost nothing at this scale has matched.

Advertising revenue reached $762 million, up 64%, driven by increases in both pricing and impressions. Other revenue, which houses the data licensing business, grew 24% to $43 million. Gross margin ran 91.4%, an improvement from 90.8% a year earlier.

The profitability inflection was the more significant development. Net income hit $253 million, or 31% of revenue, at $1.25 per diluted share — against $89 million and $0.45 a year earlier, and against a $0.95 consensus. Earnings beat by 31.6% and more than doubled year over year. Adjusted EBITDA reached $343 million at a 43% margin, up 106% from $167 million. Operating income ran roughly $231.7 million.

Cash generation matched it. Operating cash flow came in at $262 million, 33% of revenue, up 135% from $111 million. Free cash flow more than doubled to $261 million from $111 million. Trailing twelve-month operating cash flow crossed $1 billion for the first time.

The efficiency metric is the one that should command attention: revenue per employee crossed $1 million in the quarter. A social platform generating $805 million a quarter at a 91.4% gross margin and 43% adjusted EBITDA margin with seven-figure revenue per head is structurally different from the ad-supported businesses it gets compared to.

The balance sheet supports the position. Cash sits near $1.49 billion with minimal debt and a current ratio of 12.7 — enough flexibility to absorb traffic shocks and keep funding product without touching the capital markets.

Sixty-one percent growth, 43% margins, 91.4% gross margin, $261 million of free cash flow, and the stock fell 22.5%. That configuration is either a mispricing or a market correctly discounting the durability of the growth curve. The distinction rests entirely on traffic.

Q3 Guided To $860-$870 Million Above Consensus

Management did not hedge on the forward guide, which is what makes the reaction more notable. Third-quarter revenue was guided to $860 million to $870 million against a consensus between $828 million and $830 million — an $865 million midpoint sitting 4.3% above the Street.

Adjusted EBITDA was guided to $385 million to $395 million against $368 million expected, a $390 million midpoint 6.0% above consensus. Profitability guidance was raised. Full-year stock-based compensation expense was lowered to the low-to-mid teens as a share of revenue, though the same expense is expected to run elevated in the third quarter specifically.

Run the arithmetic on the guide. The $865 million midpoint against $804.9 million delivered represents 7.5% sequential growth and, against the prior-year comparable, growth still in the high 40s to low 50s. The $390 million EBITDA midpoint implies a 45.1% margin, expanding from 43%.

That is a company guiding to accelerating margins on decelerating-but-still-extraordinary revenue growth. Guidance that sailed past expectations is the phrase that fits, and it is the reason multiple analysts kept constructive ratings while cutting targets — the objection is to the multiple, not the model.

The gap between guidance and price action defines the setup. A stock at $155.26 on a $29.87 billion capitalization, annualising the $865 million guide to roughly $3.46 billion, trades at 8.6 times forward sales. Annualising the $390 million EBITDA guide to $1.56 billion puts it at 19.2 times forward EBITDA. Those are not bubble multiples for a business compounding revenue above 50% with 45% margins.

The complication is what happens after the third quarter. Eight consecutive quarters above 60% growth becomes seven, then the comparison base gets harder, and the U.S. user number has to contribute. Growth from $500 million to $805 million was achieved with U.S. daily users rising. Growth from $865 million onward has to come from pricing, ad load, international expansion and monetisation efficiency if the domestic base is flat.

The guide covers the quarter. It does not answer 2027.

The Google Referral Problem Is The Whole Bear Case

The sentence that cost roughly $8 billion of market value: search referrals were choppy in the quarter, and traffic was more volatile later in the quarter.

That is the crux. Reddit's logged-out traffic — the users who arrive via a search result rather than opening the app — has historically been the top of the funnel that converts into logged-in daily users. Google's shift toward AI-generated summaries in place of traditional search links compresses that funnel. Summaries answer the query without delivering the click.

The chief executive has escalated the criticism publicly since the print, arguing that AI Overviews summarise publishers' content without delivering the traffic benefits of traditional search. The strategic counter-argument is that as the internet fills with synthetic content, people crave real human perspective — that the platform is the antidote to an automated web, that AI compresses the internet into summaries while the platform delivers deep discussions, passionate debates and lived experiences, and that people do not want a summary of Reddit, they want Reddit.

That is a good line. It is also a bet that user intent overcomes the mechanics of distribution, and distribution is controlled by a competitor.

The scale of the direct commercial relationship is smaller than the headline suggests. The Google licensing contract runs roughly $60 million a year — under 2% of projected 2026 revenue. The real risk is not the contract size but the AI search changes and reduced referrals that pressure traffic growth. The reasonable expectation is that the two companies find a structure preserving referral flow while feeding AI models, since both sides need the arrangement.

Management's structural response is to reduce the dependency. The platform is being rebuilt around a single search bar, with an AI answers tool trained on community discussions delivering direct summaries from millions of threads. Internal search usage has already surpassed 70 million weekly active users. A separate video experience is in development.

Owning the search layer rather than renting it is the correct answer. It takes quarters to prove, and the market is pricing the interim.

Data Licensing At $43 Million And No New AI Deals

The absence of an announcement mattered as much as the presence of the traffic warning. Part of the 22.5% drop was fuelled by the lack of new AI data licensing agreements, and that omission cut into the most differentiated part of the investment case.

Other revenue, which houses licensing, grew 24% year over year to $43 million — a 5.3% share of the $804.9 million total. The two largest licensing partners are the leading AI lab and the dominant search company. That is a duopoly of counterparties for a revenue line whose entire strategic value rests on scarcity: human-generated conversational data is finite, and models need it.

The bull framing has been consistent from management — there is no artificial intelligence without actual intelligence, and that comes from Reddit. AI companies need the platform more than the platform needs them. That leverage argument justifies a premium multiple only if it converts into signed contracts at rising prices, and $43 million growing 24% is not yet that conversion.

Compare the growth rates and the problem is visible. Advertising grew 64%. Licensing grew 24%. The segment with theoretically the most pricing power is growing at a third of the rate of the segment competing against every other ad platform. If human data were genuinely scarce and genuinely essential, licensing would be the fastest-growing line rather than the slowest.

The counter is timing. Licensing deals are lumpy, multi-year and negotiated in private. A quarter without an announcement is not a quarter without progress, and the renewal cycle on existing agreements is where repricing happens rather than in a quarterly growth rate.

For the forecast, licensing is the asymmetric catalyst. A new agreement at a materially higher rate, or a third major counterparty, changes the story more than any single quarter of advertising can — because it validates both the scarcity thesis and the argument that AI adoption is a tailwind rather than a threat to distribution.

That announcement is the single most likely trigger for a move back above $185. It did not come in July.

The Buyback At $157.57 And Why Spot Below It Matters

The company repurchased $235 million of stock during the second quarter, buying 1.5 million shares at an average price of $157.57. As of June 30, $760.4 million remained authorised — 2.4% of the market capitalization at Wednesday's level.

Wednesday's $154.71 intraday print put the stock 1.8% below that average repurchase price. That detail is more informative than it looks. A management team that deployed $235 million at $157.57 is watching the shares trade beneath its own cost basis with $760.4 million of dry powder still authorised.

The mechanics matter for the floor. Buying $760.4 million at prices near $150 retires roughly 5.1 million shares, or 2.6% of the 192.4 million outstanding. Against average daily volume, that is a persistent bid capable of absorbing meaningful selling pressure — and it is a bid that becomes more aggressive the lower the price goes, which is the opposite of how most marginal buyers behave.

It also signals confidence in the capital allocation framework. A company generating $261 million of quarterly free cash flow, sitting on $1.49 billion of cash with minimal debt and a 12.7 current ratio, does not need to hoard capital. Returning it at 8.6 times forward sales while the market discounts the traffic story is a coherent use of the balance sheet.

The risk is that buying at $157.57 looks premature if the U.S. user number declines again in the third quarter. Repurchasing shares into a structural deterioration destroys value rather than creating it, and management's read on the traffic issue is precisely what the market is disputing.

Set against the other capital signals, the picture is consistent. Full-year stock-based compensation was guided lower to the low-to-mid teens as a share of revenue, reducing dilution. Diluted shares stood at 206.6 million a year earlier against 192.4 million outstanding now. The share count is going the right direction.

For anyone trading the range, $157.57 is a reference level with real money behind it. Below it, the company is a buyer.

Ad Products: Max Revenue +150% And Advertisers +70%

The advertising engine detail is where the durability case actually lives, and it received minimal attention in the reaction.

Active advertisers increased more than 70% in the quarter. Revenue from the automated ad platform grew more than 150% sequentially, with advertisers on that platform up more than 60% quarter over quarter. Mid-market and small-business channel revenue more than doubled year over year. Growth was broad-based across verticals rather than concentrated.

That composition matters enormously for the traffic debate. Advertising revenue rose 64% on increases in both pricing and impressions — the same dual expansion that separates a platform with improving performance from one merely selling more inventory. Advertisers do not pay higher prices per unit for identical outcomes, and a 70% increase in active advertisers means the addressable buyer base is widening rather than concentrating.

The mid-market and small-business doubling is the strategic unlock. Enterprise ad budgets are won through relationships and measurement; the long tail is won through automation. A platform whose automated tooling drives 150% sequential revenue growth is building the machine that lets it monetise without a proportional sales force — which is what took revenue per employee above $1 million.

The commercial positioning is explicit. The influence in the purchase-decision journey is presented as clear, with advertisers increasingly recognising that their customers place rising value on human advice. The advertising business is described as benefiting from direct app traffic rather than search-driven visits, which is the internally consistent version of the traffic argument: if ads monetise direct users and direct users are growing, referral volatility affects the funnel rather than the revenue.

That claim is testable in one quarter. If the third quarter delivers $860 million to $870 million with advertising up 60%-plus while U.S. daily users stay flat at 53.2 million, the argument is proven and the multiple should recover. If revenue decelerates below the guide, the funnel matters after all.

Sixty-four percent advertising growth on pricing and impressions, with 70% more advertisers and automation revenue up 150% sequentially, is not the profile of a platform losing its audience.

International At +84% Versus U.S. At +56%

The geographic split is the second structural offset to the domestic user problem. International revenue grew 84% year over year to $167 million while U.S. revenue grew 56% to $638 million.

That divergence is the growth runway. International represents 20.7% of total revenue on a user base that is far larger in absolute terms — global daily active uniques of 130.3 million against 53.2 million in the U.S. means roughly 77.1 million users outside the domestic market generate $167 million, or approximately $2.17 per user per quarter. Domestic users generate $11.85. The monetisation gap is 5.5 times.

Closing even part of that gap represents more revenue upside than any plausible increase in U.S. user count. If international average revenue per user reached half the U.S. level, the segment would generate roughly $457 million a quarter on the current user base — nearly tripling from $167 million without adding a single user.

That is why the stated ambition is a billion daily users, and why global expansion sits alongside the search rebuild in the strategic framing. The company has crossed 500 million weekly active uniques at 514.6 million, up 24%. The scale exists. The monetisation does not yet.

The offsetting reality is that international ad markets are lower-yielding structurally, not just currently. Advertiser density, purchasing power and measurement infrastructure all favour the U.S., which is why every ad platform shows the same geographic revenue skew. Eighty-four percent growth off a $167 million base adds roughly $140 million annualised; 56% growth off $638 million adds roughly $1.4 billion.

So the domestic market remains the engine and the international market remains the option. A U.S. user base going sideways at 53.2 million with average revenue per user at $11.85 growing through pricing and ad load, plus international compounding at 84% off a low base, still produces the $865 million third-quarter guide.

For the forecast, international at 84% is the reason the growth curve does not break even if U.S. users stay flat. It is not the reason the stock re-rates.

The Metric Disclosure Change Starting Q3

A governance decision buried in the earnings call deserves more scrutiny than it received: the company will stop reporting logged-in and logged-out user metrics starting in the third quarter of 2026.

The timing is the problem. Logged-out traffic is precisely the metric that measures search referral dependency — the exact issue that drove a 22.5% single-day decline. Removing the disclosure in the quarter immediately after the traffic warning eliminates the market's ability to verify whether the referral situation is improving or deteriorating.

That reduces transparency at the moment transparency is most valuable. Investors attempting to assess whether AI Overviews are structurally compressing the funnel now have to infer it from aggregate daily active uniques, which blend both cohorts and can mask a deteriorating logged-out trend behind a growing logged-in one.

The defensible rationale is strategic consistency. If the business genuinely lives with direct repeat users, and if the company is not building for drive-by traffic, then reporting a metric that measures drive-by traffic invites the market to value the business on the wrong variable. Management has argued that direct high-quality app users are worth multiples more than referral visitors, and disclosing both invites a mechanical read of a distinction that is not economically equal.

The market will not extend that benefit of the doubt cheaply. Removing a metric under pressure carries a credibility cost regardless of the underlying logic, and it means the third-quarter report becomes harder to underwrite rather than easier.

The other flag from the call: stock-based compensation is expected to run elevated in the third quarter even as full-year guidance was lowered to the low-to-mid teens as a share of revenue. Elevated compensation expense alongside reduced user disclosure in the same quarter is not the combination a re-rating needs.

For the forecast, this pushes more weight onto the revenue and EBITDA guide as the verification mechanism. If the third quarter delivers $860 million to $870 million and $385 million to $395 million with total daily active uniques still growing, the traffic thesis holds regardless of what is disclosed.

Investors will have to trade the P&L rather than the funnel.

Valuation At 10.9x Sales And 40x Earnings

The multiple is where the bull and bear cases actually collide, and it is no longer expensive by growth-stock standards.

The stock carries a price-to-sales ratio near 10.9 and a price-to-earnings ratio around 40.3. On forward twelve-month sales the multiple compresses to 6.95 times, against a broader technology sector at 6.28 times — a premium of 10.7% for a company growing revenue 61% against sector growth in the low double digits.

Annualise the guidance and it looks cheaper still. The $865 million third-quarter midpoint annualises to $3.46 billion, putting the $29.87 billion capitalization at 8.6 times forward sales. The $390 million EBITDA midpoint annualises to $1.56 billion, giving 19.2 times forward EBITDA on a business expanding margin from 43% to 45.1%.

That is a reasonable price for 50%-plus revenue growth, 91.4% gross margin, $261 million of quarterly free cash flow and a net cash position near $1.49 billion. Valuation screens still flag the stock as poor value on intrinsic-value frameworks — one classic formula puts fair value at $56.56 against $155.26 — but those models penalise growth companies systematically and have flagged this stock the entire way from $50.44 to $282.95.

The sell-side distribution tells you where consensus sits after the reset. Thirty-four analysts carry a Buy consensus with a $216.35 average target, implying 39.3% upside from $155.26. A separate count of 27 analysts averages $236.19. A broader survey of 100 ratings puts the six-month average at $223.60 with a low of $110.

The target cuts were near-universal and the ratings largely were not. Reductions landed at $145 from $185, $142 from $187, $170 from $200, $185 from $200, $195 from $215, $200 from $225, $200 from $250 and $221 from $250 — with one target raised to $270 from $250. Multiple firms cut price while keeping Outperform or Buy ratings, which is the sell-side saying the multiple compressed rather than the model broke.

The lowest target on the board, $110, sits 29.2% below spot. The highest, $270, sits 73.9% above. That dispersion is the honest measure of uncertainty here.

The Sector Tape And What It Says About Ad Platforms

Wednesday's session inside digital advertising was violent and selective, and Reddit's relative performance was middling rather than terrible.

Snap fell 7.94% to $5.33. Pinterest dropped 8.68% to $23.36. Alphabet's two share classes fell 4.03% and 4.05%. Reddit lost 2.94% to $155.26. Meta closed up 0.14% at $588.77. Spotify gained 0.85%.

The pattern is instructive. The scale platforms held or fell least. The subscale platforms got taken apart. Reddit sat between the two groups — better than Snap and Pinterest, worse than Meta and Alphabet. That is roughly where a $29.87 billion platform with 130.3 million daily users belongs in a rotation out of advertising beta.

The read-through from the largest player is directly relevant. Meta's advertising revenue grew 27% to $59.4 billion on impressions up 14% and average price per ad up 12% — evidence that the ad auction is functioning and pricing power is intact across the category. Reddit's 64% advertising growth on rising pricing and impressions is the same signal at a twentieth of the scale.

So the category is not the problem. Budget is flowing, pricing is holding, and the largest platforms are compounding. The problem is specific: a platform whose top-of-funnel is controlled by a competitor that is changing how search works.

Roblox crashed more than 20% alongside Reddit in the same window, which points to something broader about how the market is treating engagement-dependent business models. Both companies delivered acceptable financials and both were repriced on user metrics rather than revenue.

The macro overlay is neutral-to-hostile. The Nasdaq Composite fell 0.83% Wednesday to 26,363.44 while the Dow printed a record 54,349.06 close — a rotation out of growth into industrials, healthcare and financials. Software names that beat and guided cautiously lost 16% to 23%. The policy rate holds at 3.50%-3.75% with three committee members preferring a hike, and the 10-year note trades near 4.62%.

A higher discount rate compresses the multiple on cash flows pushed further out. That is the environment a 40 times earnings multiple has to survive.

What Has To Happen For $200

Building the bull case honestly requires a specific sequence, and each step is verifiable.

First, the third quarter has to deliver inside or above the $860 million to $870 million guide with adjusted EBITDA at $385 million to $395 million. That confirms the revenue engine is indifferent to referral volatility and validates the argument that the business lives with direct repeat users.

Second, total daily active uniques have to keep growing from 130.3 million. Management is removing the logged-in and logged-out breakdown, so the aggregate becomes the only available check. Growth there with U.S. users flat proves the international and app-direct engines are carrying the load.

Third, a data licensing announcement. Other revenue at $43 million growing 24% is the weakest line in the model and the one with the most theoretical pricing power. A third major counterparty, or a renewal at a materially higher rate, validates the scarcity thesis and reprices the segment.

Fourth, evidence that the search rebuild is working. Internal search has surpassed 70 million weekly active users. Scaling that toward the 514.6 million weekly active base converts the platform from a search destination into a search product, which structurally removes the dependency the market is discounting.

Fifth, the buyback keeps executing. With $760.4 million authorised — 2.4% of the capitalization — and management having bought at $157.57, continued repurchase below that level provides both a floor and a signal.

Deliver those and the stock returns toward the $185 to $200 zone where the majority of post-cut targets cluster, then toward the $216.35 consensus. That represents 19.2% to 39.3% upside from $155.26.

The bear path needs only one failure. A third-quarter revenue miss inside the guided range, another sequential U.S. user decline, or a hostile change in search distribution takes the stock back toward $138.07 and then the 52-week low at $119.27 — declines of 11.1% and 23.2%.

Eight consecutive quarters above 60% growth built the multiple. One quarter of user regression cut it 45%.

The Trade Into Q3: $185 Base Case, $138.07 Invalidation

The forecast resolves into a defined range with the fundamental catalyst roughly eleven weeks out. RDDT at $155.26 sits 12.4% above the July 31 low at $138.07 and 1.5% below the $157.57 average buyback price.

The bull path runs through resistance in sequence. Reclaim $157.57, which puts the stock back above management's own cost basis and re-engages the corporate bid as a floor rather than a ceiling. Take $160.50, the July 31 pre-market level, then $170 where the lowest cluster of post-print targets sits. Above that, $185 to $195 is where the majority of reduced targets concentrate, and $216.35 is the 34-analyst consensus, 39.3% above spot.

The bear path is shorter. Losing $154.71 exposes $150 and then $140.67, the July 31 close. Breaking $138.07 — the post-earnings low — opens the way toward $119.27, the 52-week low, a 23.2% decline. Below that there is no reference level until the pre-2025 base.

The base case is range-bound consolidation between $140 and $175 into the third-quarter report. The stock trades below its 200-day moving average near the bottom of its 52-week range with technical composites reading weak sell, and there is no scheduled fundamental catalyst until the next print. What fills the gap is licensing news, search-distribution headlines and sector flow.

Position sizing should respect the specific asymmetry. The financial model is one of the strongest in mid-cap technology: $804.9 million of quarterly revenue growing 61%, 91.4% gross margin, 43% adjusted EBITDA margin expanding to a guided 45.1%, $261 million of quarterly free cash flow, $1 billion of trailing operating cash flow, $1.49 billion of cash, minimal debt, a 12.7 current ratio, revenue per employee above $1 million, and $760.4 million of buyback authorisation.

Against that sits one number: 53.2 million, down from 53.5 million. A single sequential decline in the highest-monetising user cohort, with the disclosure that would let investors track its cause being removed next quarter.

Base case into the Q3 print: range $140 to $175, targeting $185 on confirmation that revenue landed inside the $860 million to $870 million guide, with invalidation on a daily close below $138.07. The business is compounding. The funnel is the trade.

That's TradingNEWS