$Reddit(RDDT.US) delivered an overall solid Q2, with monetization once again beating expectations. As a key AI data source with highly authentic UGC, Reddit is benefiting from referral traffic from Google and other gateways. At the same time, it is still early in monetization and is expanding beyond brand to performance ads.

However, the weakness in U.S. user growth widened this quarter — U.S. DAU declined QoQ for the first time. This aligns with third-party data pointing to user churn in Feb/Mar, and the market is increasingly concerned about the impact of Google AI Overview on Reddit’s acquisition funnel.

Adding to this, there are reports of tensions between Reddit and Google, while Reddit remains highly dependent on Google for referral traffic, contributing approx. 30–40% of new volume. From Q3, the company will also stop disclosing logged-in vs. logged-out user metrics.

Management argues that whether a user is logged in does not impact usage or monetization. Dolphin Research believes logged-in behavioral data will materially help Reddit’s future feed-based distribution, so it bears watching how the company nudges users to retain data going forward.

With multiple factors converging, investors are likely to scrutinize Reddit’s user trends more closely this time. On the trading side, valuation has also moved up.

In the last print, based on a 2–3Y profit CAGR, we assigned a 40x P/E for this year, implying a $35bn valuation. Ahead of this quarter’s print the cap had already risen to $34.2bn, leaving limited upside and a premium vs. peers. Given current sentiment, near-term investors will look for a cleaner beat-and-raise.

We will continue to watch the partnership with Google, and Dolphin Research expects both sides to renew. Some terms may change, such as adjustments to data licensing fees and minimum guaranteed referral traffic. If near-term concerns around user growth and the Google relationship trigger a valuation pullback, we would consider moderate longs.

Detailed charts below:

1) User metrics: U.S. DAU declined QoQ for the first time

Q2 platform DAU reached 130mn, a net add of 3.5mn QoQ. WAU rose 24% YoY, a net add of 21.5mn. Engagement (DAU/WAU) was 25.3%, flat QoQ.

By region, the U.S., which contributes the bulk of monetization value, saw DAU decline QoQ for the first time. Intl DAU grew 28%, and machine translation now covers 30+ languages globally.

2) Monetization continues to expand

Q2 revenue was 810mn (+61% YoY), with growth moderating slightly QoQ. Management guided Q3 revenue growth to slow to 48%, which we view as conservative given their typical practice. With Reddit Max set to roll out broadly, we remain relatively constructive on monetization.

Data licensing revenue is recognized ratably over contract terms, hence relatively stable. Key customers include Google, OpenAI and Perplexity, among other AI players for model training.

3) Margin already high, with limited room for further optimization

Q2 GPM expanded 50bps YoY, but dipped slightly QoQ on seasonality. Versus peers, it is near the ceiling.

Sales and marketing remained the fastest-growing opex line, up 67% YoY, though slower than last quarter. Given the accelerated monetization phase, total opex improved by 9pct YoY, and SBC as a share of revenue fell to 13% from 19% a year ago.

The profitability target is an Adj. EBITDA margin of 50%, and Q2 improved another 2pct QoQ to 42.6%, on a continued uptrend. FCF was 261mn (+35% YoY), at 32% of revenue, consistent with a capital-light, cash-cow ad model.

The previously announced $1bn buyback program has been underway since early this year, with a clear step-up in Q2 as the company repurchased 1.5mn shares for $235mn at an Avg. price of $157. There is $760mn remaining, and net cash was $2.8bn at Q2-end. With quarterly FCF now around $300mn, maintaining the buyback should not be challenging.

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Dolphin Research on 'Reddit' — historical work

Earnings (recent)

May 1, 2026 Trans: Reddit (Trans): After search, feed is the long-term monetization driver

May 1, 2026 earnings take: Enjoying the monetization acceleration

Oct 31, 2025 Trans: Reddit (Trans): Core search WAU at 70mn

Oct 31, 2025 earnings take: Another beat and surge — how to reconcile expectations pre/post print?

Deep dives

Dec 24, 2024 initiation: Reddit: Why is the U.S. 'Zhihu + Tieba' sprouting new growth?

Risk disclosure and statement: Dolphin Research disclaimer and general disclosure