Reddit Soars 17% on Blowout Earnings, Defies Market Sell-Off With AI Ad Surge

WATCH: The Fed’s “independence” is a myth — here’s who really calls the shots

Reddit (RDDT) delivered a blockbuster second-quarter earnings report that defied a broader market sell-off, with shares surging 17% as the company posted its strongest revenue growth since going public. Against a backdrop of pressure on social media peers to prove the value of their AI investments,

The headline numbers told the story of a company firing on all cylinders. Reddit’s $500 million in revenue beat consensus estimates of $426 million by 17%, while EPS of $0.45 crushed expectations of $0.19. Net income came in at $89 million, a stark turnaround from the $10 million net loss in the same quarter a year ago. Adjusted EBITDA reached $167 million, a 33% margin, reflecting strong operating leverage and efficient cost controls. Average revenue per user (ARPU) surged 47% to $4.53, also well above the Street’s $3.90 estimate.

Ad revenue was the star of the show, growing 84% year-over-year to $465 million. This momentum was driven by Reddit’s suite of AI-powered tools, including Reddit Insights, Conversation Summary Add-ons, and Reddit Answers. These features not only enhanced ad personalization but also boosted user engagement by making the platform’s sprawling conversations more digestible and interactive. Reddit Answers in particular has seen explosive adoption, with 6 million weekly users in Q2, up from just 1 million last quarter. By keeping users on-platform and creating new ad inventory—such as dynamic shopping ads—these tools are proving highly monetizable.

User growth added further fuel. Global daily active uniques rose 21% year-over-year to 110.4 million, exceeding analyst forecasts of 109 million. Both logged-in and logged-out users contributed: logged-in DAUs rose 17% to 49.3 million, while logged-out DAUs jumped 24% to 61.1 million. CEO Steve Huffman credited the company’s ability to drive traffic directly through innovations like Reddit Answers, reducing dependence on Google (GOOG) search referrals. Huffman acknowledged that Google’s generative AI features have created headwinds but emphasized Reddit’s brand strength, noting it is one of the most searched-for terms globally.

Profitability improvements were another highlight. Gross margin expanded 130 basis points year-over-year to 90.8%, marking the fourth straight quarter above 90%. Operating efficiency, coupled with higher ad pricing, drove this expansion. Free cash flow totaled $111 million, while cash and investments ended the quarter at $2.06 billion, providing ample resources for continued investment.

Reddit also issued an upbeat outlook. For Q3, management guided revenue to a range of $535–$545 million, far above consensus expectations of $473 million. Adjusted EBITDA is expected between $185–$195 million, implying margins near 35% and up to 110% year-over-year growth. CFO Andrew Vollero noted that investments in marketing, sales automation, and international expansion would continue in the second half, but stressed the company had found a “sweet spot” balancing growth and profitability.

Investors clearly liked what they heard. Shares of Reddit jumped as much as 20% on the results before settling to a 17% gain, breaking above the $160 level and holding firmly despite a broader equity sell-off. The move represents a decisive technical breakout, with analysts noting the stock now trades in a stronger position to sustain momentum. With $160 as a new support level, traders are watching for potential follow-through if user and ad growth continue at this pace.

The enthusiasm reflects more than just numbers. Reddit’s ability to monetize its unique, community-driven content in an AI-driven digital ad world is resonating with investors. As Huffman put it, “The internet is evolving, and our role as a community-powered platform for human connection is only becoming more critical.” That message, backed by the fastest revenue growth since its IPO and confident guidance for the next quarter, explains why Reddit is surging while much of the broader market is bleeding red.

In short, Reddit’s Q2 report checked all the boxes: accelerating growth, profitability, product innovation, and a strong outlook. The breakout above $160 suggests investors see more upside ahead—so long as management continues to execute on its AI-powered strategy and fend off headwinds from Google’s evolving search ecosystem.