Reddit Surges After Posting Revenue Beating Analyst Estimates

Reddit’s first-quarter 2025 earnings report has sent shockwaves through the social media sector, as the platform reported record revenue growth and a stunning turnaround in profitability. With shares surging 17% in after-hours trading, Reddit’s Q1 results not only beat expectations but also highlighted its growing dominance in an increasingly fragmented digital landscape. Let’s dissect the numbers and assess what this means for investors.

Ask Aime: "Is Reddit's Q1 earnings report a sign for social media stocks?"

The Financial Breakthrough: Revenue Soars, Margins Expand

Reddit’s revenue skyrocketed 61% year-over-year to $392.4 million, far exceeding the $370 million analyst consensus. Ad revenue, which now accounts for 91% of total revenue, grew at the same pace, while “Other revenue” (data partnerships, licensing) surged 66%. This diversification is critical, as it reduces reliance on volatile ad markets.

Profitability took a leap forward: Net income turned positive for the first time in years, reaching $26.2 million, compared to a staggering $575 million loss in Q1 2024 (driven by one-time IPO costs). Adjusted EBITDA hit $115.3 million, or 29.4% of revenue—a stark improvement from just 4.1% in 2024. Gross margins expanded to 90.5%, underscoring Reddit’s low-cost, high-scalability business model.

User Growth: A Global Phenomenon

Reddit’s user base is expanding rapidly. Daily Active Users (DAUq) rose 31% to 108.1 million, with logged-out DAUq (casual users) jumping 38%—a sign the platform is attracting transient audiences while retaining its core logged-in community. Weekly Active Users (WAUq) hit 401.3 million, with international WAUq surging 44% to 223 million. This global reach is vital, as international revenue grew 82% to $78.5 million.

Guidance and Industry Context: Outpacing Competitors

Management’s Q2 guidance is aggressive: $410–$430 million in revenue, well above the $396 million estimate. This confidence stems from Reddit’s ability to grow through macroeconomic headwinds—a contrast to peers like Meta and Alphabet, which face ad spend slowdowns in key regions. CEO Steve Huffman’s comment—“We’ve grown through challenging times before”—hints at a strategy focused on user-centric content, not just ads.

Risks and Analyst Outlook: A Mixed Picture

Despite the Q1 triumph, Reddit’s stock has underperformed this year, down 28.7% since early 2025. Zacks Investment Research’s “Strong Sell” rating underscores lingering concerns about tech sector volatility and Reddit’s historical underperformance. However, the company’s $21.09 billion market cap and 90.5% gross margins suggest long-term resilience. The key question is whether reddit can sustain growth in logged-out-to-logged-in conversions and leverage its ad tech stack to monetize new users effectively.

Conclusion: A Buy with a Long View

Reddit’s Q1 results are a clear win, showcasing execution excellence and structural improvements. The 61% revenue growth, $126.6 million Free Cash Flow, and 90.5% gross margins form a compelling case for long-term investors. However, near-term risks—such as global ad market softness and tech sector volatility—mean patience is required.

The Q2 guidance, which implies a $18–$20 million EBITDA expansion compared to Q1, signals confidence in margin retention. Meanwhile, the 82% international revenue growth and logged-out user surge suggest untapped potential. For now, Reddit appears positioned to capitalize on its strengths: a sticky community, scalable ad model, and geographic expansion. Investors should view this as a hold-to-buy opportunity, prioritizing the long game over short-term dips.

In a sector where many giants are struggling, Reddit’s Q1 results are a reminder of its unique value proposition. While risks remain, the data points to a platform primed for sustained growth—if it can keep executing.