Reddit Rockets Higher: Blowout Earnings, 91% Margins, and an Ad Boom That’s Turning Memes Into Millions

Reddit’s third quarter delivered the kind of surprise that forces even skeptical analysts to take notice. The stock is up roughly 12% in premarket trading to $215, powered by a rare combination of hyper-growth and profitability that few social platforms have managed to pull off. Advertising revenue surged 74% year-over-year, daily active users jumped 19%, and margins reached all-time highs—proof that Reddit’s hybrid model of community-driven content and AI-enhanced ad tools is scaling faster than expected. With management guiding to even stronger Q4 results and EBITDA margins now pushing past 40%, Reddit is suddenly looking less like a fledgling social network and more like a legitimate profit engine. Investors are eyeing the $223 level—its 50-day moving average—as the next test in what’s been a meteoric post-IPO climb.

The numbers easily cleared the Street’s bar. Q3 revenue reached $585 million, topping consensus estimates of roughly $545–$550 million by over 7%. EPS crushed expectations at $0.80 versus $0.51 forecast. Net income jumped to $163 million from $30 million a year ago, marking a 28% net margin and confirming Reddit’s arrival as a consistently profitable platform. Adjusted EBITDA hit $236 million—more than double last year’s—and margins expanded to 40% from 27%, a key milestone for management. The company’s gross margin of 91% underscores how efficiently its ad platform and data licensing business scale as traffic and engagement grow.

User engagement and monetization both impressed. Global daily active uniques rose 19% to 116 million, slightly above the 114 million expected, with 5.6 million new DAUs added quarter-over-quarter. While U.S. logged-in DAUs grew at a slower 7% pace, international expansion continued to accelerate thanks to machine translation in over 30 languages and localized onboarding. Average revenue per user (ARPU) climbed 41% year-over-year to $5.04, driven by higher ad load, improved targeting, and a surge in advertiser demand. COO Jennifer Wong noted that active advertiser count rose over 75% from a year ago, supported by performance-marketing adoption, new ad formats, and improved automation.

The advertising engine was the undisputed highlight. Ad revenue hit $549 million, up 74% from last year and roughly 94% of total revenue. CFO Andrew Vollero credited both higher impressions and pricing, alongside better campaign conversion rates. Reddit’s “Reddit Pro” tools, aimed at publishers and small businesses, helped deepen advertiser engagement. Analysts at Citizens Bank said the results show Reddit’s increasing importance to the “open web ecosystem,” as its user-generated content feeds search engines and chatbots alike. That exposure is making Reddit indispensable to advertisers looking for authenticity and intent-driven audiences—an advantage that rivals like X (formerly Twitter) have struggled to replicate.

Cash flow and balance sheet strength provided another layer of validation. Operating cash flow surged to $185 million and free cash flow reached $183 million, good for a 31% margin. Cash and equivalents climbed to $2.2 billion, leaving Reddit well positioned to reinvest in product development, AI tools, and international growth. Stock-based compensation expenses fell sequentially from 19% to 16% of revenue—a sign of improving operating leverage and cost discipline. Reddit also continues to shrink its diluted share count modestly, another welcome development for investors.

Management’s tone was upbeat and confident. CEO Steve Huffman highlighted Reddit’s position as the “#3 most visited site in the U.S.” and credited balanced growth between organic engagement and marketing campaigns. He emphasized ongoing investments in the app experience, search integration, and onboarding, which together aim to raise retention and conversion. Huffman said the focus remains on “core product, search, and internationalization,” with machine translation and AI moderation now key pillars. The company is also pushing deeper into partnerships and monetization via its data licensing business, which contributed $36 million in revenue for the quarter—a modest share, but strategically important as chatbots and search engines continue tapping Reddit’s corpus of human conversation data.

Guidance for Q4 points to sustained momentum. Management expects revenue between $655 million and $665 million, about $25 million above consensus at the midpoint, representing 53–55% year-over-year growth. Adjusted EBITDA is projected at $275–$285 million, implying another 78–85% increase from last year, with margins of roughly 42%. CFO Vollero called the business model “powerful,” noting that incremental margins have averaged around 60% over the past year. Analysts at Citizens and others now believe Reddit could reach EBITDA margins “in the 50s” as operating leverage scales in 2026.

The most impressive takeaway was the combination of top-line acceleration, massive advertiser expansion, and margin discipline—an uncommon trifecta in social media. Reddit is executing on multiple fronts: refining the user experience, driving adoption of new ad tools, and successfully monetizing one of the internet’s most authentic content ecosystems. While user growth in the U.S. continues to moderate, the platform’s international and product-led expansion more than offsets it. The company’s 91% gross margin, surging free cash flow, and strong Q4 guide suggest the business model has hit its stride.

In short, Reddit’s blowout quarter shows that its post-IPO story is evolving from promise to performance. The stock’s 12% premarket jump reflects that realization—and if it can break above its 50-day moving average at $223, momentum traders may see fresh upside ahead. Reddit is no longer just a cultural touchstone—it’s becoming one of the most profitable ad platforms in the business.