Reddit’s Earnings Were Strong. So Why Is the Market Worried About Users?
Revenue climbed 61% year over year to $805 million. Advertising revenue grew 64%. Advertiser count increased 70%. Daily Active Uniques, or DAUq, reached 130.3 million, up 18%.
Reddit1 reported another very strong quarter today.
Revenue climbed 61% year over year to $805 million. Advertising revenue grew 64%. Advertiser count increased 70%. Daily Active Uniques, or DAUq, reached 130.3 million, up 18%.
Reddit also guided third-quarter revenue to between $860 million and $870 million, ahead of what Wall Street was expecting.
And the stock fell.
That might sound strange, but earnings reactions are rarely as simple as whether a company beat revenue expectations.
The concern this quarter appears to come back to user growth, particularly the volatility Reddit has seen from logged-out users arriving through search engines.
I understand why the market is watching that.
What I think is getting lost in the conversation is that not every Reddit user has the same value to the business.
And the numbers from this quarter make that distinction pretty important.
Not Every Daily Active User Is the Same
Reddit reports Daily Active Uniques, or DAUq, as one of its primary audience metrics.
Historically, Reddit has also separated those users into logged-in and logged-out users. That distinction matters.
Reddit has previously said publicly that logged-in users tend to have higher engagement and spend more time on the platform than users who are not logged into an account.
Logged-out traffic works differently. A lot of it comes from search.
Someone Googles2 a question, finds a Reddit discussion, reads the thread and may leave without ever creating an account.
That person still has value to Reddit. They can see advertising. They can discover the platform. They could eventually create an account, install the app and become a regular user.
But I don’t think a logged-out visitor arriving from Google should automatically be viewed the same way as someone who opens Reddit every day, scrolls through multiple communities, comments, searches, votes and spends meaningful time on the platform.
That is where I think part of the market’s reaction deserves more context.
The Google Problem
Reddit acknowledged that search referrals were choppy during the quarter and became more volatile later in the period.
Changes in search algorithms can have a surprisingly large impact on businesses that receive significant traffic from Google.
If Reddit pages suddenly appear less frequently in search results, fewer people click into Reddit while searching for things on the web.
That can hurt logged-out traffic.
And if investors are primarily watching the headline DAUq number, that looks concerning.
The logic is easy to follow:
Fewer users means fewer ad impressions → Fewer impressions could mean fewer conversions → Fewer conversions could cause advertisers to spend less → Less advertiser spending means slower revenue growth. That is the obvious chain of reasoning.
I’m just not convinced it is that simple.
ARPU Tells a Different Story
One of the numbers I think deserves more attention from this earnings report is Average Revenue Per Unique, or ARPU. The math is straightforward.
Reddit generated $805 million in quarterly revenue across an average of 130.3 million Daily Active Uniques.
That puts global ARPU at roughly $6.18 for the quarter.
A year ago, Reddit generated about $500 million from 110.4 million DAUq, which works out to roughly $4.53.
So while Reddit’s daily audience grew about 18%, revenue generated per unique increased roughly 36%.
That is a pretty important distinction.
If the thesis were simply: More users = more revenue
then I would be much more concerned about slowing DAUq growth. But that isn’t what the financials are showing.
Users grew 18%.
Total revenue grew 61%.
Advertising revenue grew 64%.
ARPU increased roughly 36%.
Reddit is getting considerably better at monetizing the audience it already has.
And I think that is where the logged-in versus logged-out discussion becomes much more interesting.
I Think the Market May Be Mixing Up User Growth and Monetization
This is where my interpretation differs a little.
I want to be careful here because I work in advertising measurement involving Reddit. I’m not using or referring to any nonpublic company information in this analysis.
I’m looking at the same publicly reported numbers everyone else has and thinking through what they imply.
My assumption is that the economic value of different types of Reddit traffic varies considerably.
That isn’t exactly a controversial idea.
Reddit itself has acknowledged that not all DAUq monetize in the same way or at the same rate.
An engaged Reddit user actively browsing communities represents a very different advertising opportunity than someone who lands on one conversation from Google and leaves a minute later.
And this is where I would make another assumption.
I suspect logged-in Reddit users are responsible for a disproportionately large share of the conversions advertisers actually care about.
That doesn’t mean logged-out users don’t convert. I’m sure some do.
But I would strongly suspect they represent a smaller share of meaningful advertiser outcomes compared with users who are logged in, spending more time on the platform and moving through multiple communities.
Reddit does not publicly disclose that conversion split, so there is no way to prove it from the earnings report.
But from a behavioral standpoint, it makes sense.
A logged-in Redditor can generate more sessions, more ad exposures and more opportunities for an advertiser to reach them before a conversion occurs.
A logged-out visitor from Google may read one thread and disappear.
Those are two very different advertising opportunities.
And if the traffic weakness is disproportionately coming from the second group, then declining logged-out traffic may have a much smaller impact on advertiser performance than the headline user number makes it appear.
Advertisers Aren’t Increasing Spend Because DAUq Looks Pretty
This is probably the biggest part of my thesis. Advertisers ultimately care about performance.
Sales
Leads
App installs
Customer acquisition
Incremental conversions
Return on ad spend
Whatever outcome they are optimizing toward.
They are not increasing budgets because Reddit’s DAUq chart looks nice in an earnings presentation.
Reddit reported that its advertiser count increased 70% year over year. Advertising revenue grew 64%.
That means more businesses are advertising on Reddit while total advertiser spending continues to rise rapidly.
Why? My assumption is pretty simple.
The advertising is working well enough for businesses to keep spending. That doesn’t mean every campaign performs well. It doesn’t mean Reddit has solved advertising. And it definitely doesn’t mean revenue can grow forever without user growth.
But advertisers generally do not continue shifting more budget into a platform if they consistently fail to get acceptable results from it.
That is why I think advertiser growth and ARPU deserve more weight in this discussion.
If logged-out traffic were disappearing and that traffic were critical to generating advertiser conversions, I would expect the deterioration to eventually show up somewhere in the advertising numbers.
So far, we are seeing the opposite. Advertiser count is growing. Advertising revenue is growing. ARPU is growing. Reddit is guiding above expectations again.
That doesn’t prove my thesis. But it certainly doesn’t support the idea that Reddit’s advertising engine is weakening simply because one category of traffic is under pressure.
Wall Street May Be Connecting Two Things Too Directly
I think the market may be looking at slowing logged-out traffic and drawing too straight of a line from user growth to revenue.
The assumption seems to be:
Fewer users → fewer conversions → less advertiser spending → slower revenue.
But those arrows only work cleanly if every user contributes roughly the same economic value. Reddit has already told investors that they don’t.
If most of the weakness is concentrated in search-driven logged-out visitors who monetize at a lower rate, the impact on the advertising business could be considerably smaller than the DAUq number suggests.
Meanwhile, Reddit’s more engaged audience could continue generating stronger advertiser outcomes. Advertisers see those outcomes. They increase spend. Revenue per user rises. ARPU improves.
That is almost exactly what the financial results currently show.
Again, correlation doesn’t prove the theory.
But 18% user growth alongside 61% revenue growth, 64% advertising revenue growth and roughly 36% ARPU growth is consistent with a business getting much better at monetizing its existing audience.
Logged-Out Traffic Still Matters
I don’t want to take the argument too far in the other direction. Logged-out traffic absolutely matters. Reddit needs new users.
Search has historically been one of the easiest ways for someone who isn’t already a Reddit user to discover the platform.
You Google something like:
And suddenly you’re reading a discussion between real people who have probably debated the question far more aggressively than you expected.
That discovery funnel is valuable.
Reddit’s challenge is turning some of those visitors into something more valuable over time:
A registered user.
An app user.
A returning user.
Eventually, maybe, a daily user.
So declining search traffic isn’t irrelevant. If it continued for a long enough period, it could eventually reduce the pipeline of new engaged users entering Reddit’s ecosystem. That is the risk I would actually watch.
Reddit cannot simply squeeze more revenue from the same audience forever.
ARPU has limits. Eventually the company needs both. More users and more valuable users.
The question isn’t simply “Did logged-out DAUq decline?” but “Is Reddit still successfully growing and monetizing its core audience despite volatility in search traffic?”
Right now, the financial results suggest that it is.
Reddit Is Also Getting Better at Monetization
There is another part of this story that shouldn’t be ignored.
Reddit has been investing heavily in the things that make an advertising platform better.
Better targeting
Improved conversion prediction
Automated bidding
Measurement tools
Conversion API adoption
Reddit Pixel improvements
Better tools for demonstrating advertiser ROI
That all matters. The goal isn’t simply to show advertisers more impressions. It’s to make each advertising opportunity more valuable.
If Reddit can better identify who is likely to take an action, serve more relevant advertising and give businesses better measurement of the results, advertisers can justify spending more without user growth needing to match revenue growth.
That is one of the reasons ARPU matters so much.
It gives us a way to see whether Reddit is becoming better at turning its audience into revenue. Right now, it is.
There Is Another Interesting Change Coming
Reddit has already said that beginning in Q3 2026 it plans to stop reporting logged-in and logged-out DAUq separately.
I understand why investors are skeptical anytime a company stops reporting a metric. Sometimes companies stop reporting numbers because those numbers are getting worse. Investors have learned to notice that.
But Reddit’s explanation is that its product strategy increasingly focuses on the total audience rather than managing the business around whether someone happens to be logged in.
We’ll find out over time whether that was the right decision.
Personally, I’d actually like more information about engagement and monetization rather than simply more user counts.
Time spent.
Returning users.
ARPU.
Advertising performance.
Advertiser retention.
Those metrics may ultimately tell us more about the health of Reddit’s business than whether someone found a Reddit thread through Google while logged out.
What I Would Watch From Here
Wall Street is not wrong to care about DAUq. Reddit still needs audience growth. But looking at DAUq without looking at ARPU creates an incomplete picture.
I’d be watching the relationship between:
DAUq growth
ARPU growth
Advertising revenue growth
Advertiser growth
And whatever engagement metrics Reddit gives investors.
If DAUq stays weak and ARPU growth eventually stalls, then I would become much more concerned.
If user growth slows while Reddit continues producing strong ARPU growth, advertising growth and advertiser expansion, then the market may be underestimating the value of the audience Reddit already has.
That is the part I think is happening right now.
What I Think Wall Street Is Missing
My interpretation of today’s earnings is pretty simple. Wall Street sees slowing user growth and worries that advertising revenue will eventually follow.
I see slowing growth concentrated around a category of traffic that Reddit itself has acknowledged may represent lower monetization opportunities.
At the same time:
Revenue grew 61%.
Advertising revenue grew 64%.
Advertiser count grew 70%.
ARPU increased roughly 36%.
And Reddit guided next quarter above Wall Street expectations.
Those numbers don’t look like advertisers are pulling away.
They look like advertisers are finding enough value to keep spending more.
My working assumption is that the logged-in audience plays a much bigger role in that performance than the raw DAUq numbers show.
However, I could be wrong. Reddit doesn’t disclose conversion volume by logged-in versus logged-out users, and without that data nobody outside the company can prove the relationship.
But that’s exactly why I wouldn’t look at a drop in logged-out traffic and automatically conclude Reddit’s advertising engine is getting weaker.
Right now, the financial results suggest almost the opposite.
Logged-out traffic is important because it helps feed Reddit’s future user growth.
But the users advertisers most want to reach may also be the users Reddit is monetizing increasingly well today.
If that’s true, Wall Street isn’t necessarily wrong to worry about user growth. It may just be putting too much weight on the wrong users.
Current Position is Bullish.
Position Cost Basis: $166 per share.
*Disclaimer: Not Financial Advice. Investors should conduct thorough research and seek professional advice before making any investment decisions.