Strategic Positioning in Social, From Niche Forums to Ad Powerhouse

Reddit (NYSE: RDDT) is a great social media platform. But, it has a few more things going for it than your usual click factory. It is a sprawling network of over 100,000 active communities (subreddits) where users gather to discuss every imaginable topic.

This structure has created an unmatched depth of interest-based conversation data, something advertisers can leverage to target high-intent audiences with precision.

The company’s growth story is accelerating. Daily active users reached 110.4 million in Q2 2025, up 21% year over year, beating analyst expectations.

That user growth is translating into monetization strength: revenue rose 78% in Q2 to $500 million, while ARPU surged 47%, the fastest pace since its IPO.

These gains are not just from expanding ad inventory but from serving more relevant, higher-value ads through new AI tools like Reddit Answers, which integrates directly into subreddit discussions.

Reddit’s model offers two advantages over other social platforms.

First, discussions happen within self-selected communities, which provides context and intent signals without invasive tracking.

Second, the company owns the structured, high-quality data generated within those discussions, a valuable differentiator in a privacy-conscious world.

Let’s dive into that and more below, as well as plenty of suggestions for what you should do with the stock.

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Financial Performance: Consistent Beats and Raised Guidance

Q2 results were well above consensus, with EPS of $0.45 versus $0.19 expected and EBITDA exceeding the high end of guidance by 28%. Gross margins remain at 91%, signaling a capital-light model with strong scalability.

The company guided Q3 revenue to $535–$545 million, well ahead of the Street’s $473 million estimate. This reflects both strong brand advertising and the scaling of performance ad products.

Sequential growth in U.S. DAUs, plus international momentum, particularly in France, Spain, and Brazil — provides a multi-pronged growth base heading into the second half of 2025.

Analysts responded with a wave of price target increases:

• Deutsche Bank to $205, citing accelerating monetization.

• Goldman Sachs to $212, highlighting stronger user trends.

• Morgan Stanley to $230, noting upside surprise potential.

• Citizens JMP to $225 after revenue and EBITDA both beat the high end of guidance.

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Growth Catalysts: Where the Next Leg Could Come From

1. AI-Powered Ad Targeting
The Reddit Answers search product and machine learning-driven ad placement tools are improving campaign relevance and ROI for advertisers.

By inserting brands into organic conversations, Reddit is effectively selling “moment of intent” ad inventory, rare and valuable in digital advertising.

2. International Expansion
Machine translation in 23 languages has expanded Reddit’s addressable audience.

Over half of Q2’s international DAU additions came from three markets, suggesting further runway as language and onboarding barriers fall.

3. Underpenetrated Ad Market Share
Reddit’s annualized revenue run rate is roughly $2 billion, compared to an estimated $276 billion in global social media ad spend.

Even modest share gains, supported by improving ad tools, could drive multi-year double-digit growth.

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Valuation: Paying Up for Growth

At roughly 74x forward earnings, Reddit trades at a premium to peers like Pinterest (~19x) and Snap (~28x). That valuation reflects expectations for continued rapid revenue and ARPU growth.

With momentum this strong, premium multiples can persist, but they leave little margin for error.

Investors need to believe Reddit can maintain both double-digit DAU growth and mid-40s ARPU growth for several quarters to support this pricing.