Reddit Q2 Preview: Ad Growth Momentum Meets User Growth Scrutiny

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Reddit (RDDT) reports second-quarter results after the market close on Thursday, and investors are watching closely as the platform navigates its first full quarter since being added to the S&P 500. Wall Street broadly expects another strong revenue print, with consensus estimates calling for $425–$426 million in sales and EPS of about $0.69, up more than 1,200% from last year. Yet, while advertising momentum remains robust, questions persist around daily active user (DAU) growth—particularly in the U.S.—and the impact of Google’s evolving search algorithms. For bulls, momentum in monetization, international growth, and new ad products provide strong support. Bears, however, remain focused on whether user growth is slowing in a way that could eventually cap long-term upside.

Expectations for Q2 Consensus expectations are for revenue of $425.75 million, up more than 51% year over year, in line with Reddit’s own guidance range of $410–$430 million. Analysts expect adjusted EBITDA between $110 million and $130 million, which would mark up to 230% growth compared to the prior year. EPS is expected to hit $0.69, compared with $0.31 in the same quarter last year. DAUs are projected to reach about 110 million globally, representing roughly 20% year-over-year growth, with the U.S. expected to add about 9% to 50.5 million.

Analysts are split on how much Google’s search algorithm changes are influencing these numbers. Citi and Needham argue that Reddit has largely stabilized its search-driven traffic and continues to benefit from favorable visibility under Google’s “E-E-A-T” (experience, expertise, authoritativeness, and trustworthiness) framework. Wells Fargo, on the other hand, remains cautious, recently cutting its price target and warning that declines in logged-out users could limit Reddit’s top-of-funnel growth.

Key Areas to Watch

Daily Active Users (DAUs): Still the primary debate. Deutsche Bank expects 109 million DAUs, factoring in a slight U.S. logged-out user decline offset by international growth. Any shortfall could weigh on sentiment even if revenue tops estimates.

Advertising Revenue: Expected to be the main growth driver. Needham points to strength in direct-response ads, while DBAB lifted its Q3 revenue forecast to $441 million on momentum in new formats like conversation ads and dynamic shopping ads.

Ad Load & Monetization: RBC’s analysis shows ad load remains in the mid-teens, leaving headroom for expansion. Bulls will look for management commentary on unmonetized surfaces like Reddit Answers and shopping integrations.

Product Innovation: Reddit Answers, community insights, and AI-powered ad tools are seen as key levers. Citizens notes Reddit’s positioning as a trusted platform for user-generated content could give it a durable edge in AI-driven discovery.

International Expansion: Growth outside the U.S. continues to accelerate, with translation features and local ad adoption pushing DAUs higher. Analysts see this as a critical driver in the next 12–18 months.

Analyst Sentiment Most brokerages maintain a bullish stance. Citi reiterated its Buy rating and $163 target, noting that advertiser checks point to results above consensus. Deutsche Bank and Citizens both sit at $180, with DBAB flagging strong momentum in dynamic ads. Needham lifted its price target to $165, citing stable DAU trends and a more diversified ad mix. RBC is more cautious with a $125 target, arguing traffic volatility remains a risk despite upside revenue levers. Wells Fargo downgraded the stock to Equal Weight, warning that logged-out user declines could undermine long-term growth.

Q1 Recap for Context Reddit’s Q1 2025 results provided a strong base. Revenue hit $392 million, up 61% year over year, marking the third consecutive quarter of >60% growth. Advertising revenue grew 61% to $359 million, with U.S. ads up 56% and international ads surging 83%. DAUs reached 108 million, up 31% year over year. Adjusted EBITDA was $115 million, with margins at 29%. Net income came in at $26 million, while operating cash flow hit a record $128 million.

Management highlighted new ad formats such as ads in comments, which already account for 6% of impressions. CEO Steven Huffman emphasized the role of Reddit Answers in driving engagement and search integration, while COO Jennifer Wong pointed to efficiency gains in ad pricing. CFO Andrew Vollero reported gross margins expanding to 90.5%, underscoring the scalability of the model.

The company guided for Q2 revenue between $410 and $430 million and EBITDA of $110–$130 million, which consensus now aligns with. It also flagged continued investments in international markets and AI-driven product enhancements.

Risks and Watchpoints

• Search Dependence: Google still drives 40–50% of Reddit’s traffic. Any negative shift in AI-powered search could meaningfully impact logged-out user traffic.
• User Growth Quality: While logged-in users generate most of the revenue, logged-out users are critical for funneling engagement into the logged-in pool.
• Valuation Stretch: Shares are down about 11% year to date, though some analysts note the rally earlier this year leaves the stock at 23x–25x 2026 EBITDA, a premium multiple compared to peers.
• Ad Load Ceiling: While current ad loads leave room for growth, there’s a balance between monetization and preserving user experience.

Bottom Line Reddit enters its Q2 print with strong momentum in ad revenue and product innovation, but DAU growth will be the key number that could swing sentiment. With consensus expecting >50% revenue growth and stable margins, a clean beat is possible. The bigger question is whether Reddit can prove that traffic volatility tied to Google is easing, reassuring investors that the growth story has staying power.