Reddit (NYSE: RDDT) delivered a quarter that makes the word "beat" feel inadequate. Revenue hit $804.9 million, a 61% year-over-year surge that cleared the $730.9 million consensus by $74 million. Diluted EPS of $1.25 more than doubled from $0.45 a year ago and came in $0.30 above the Street's $0.95 estimate.
This wasn't a beat driven by one-time items or easy comps. It was structural. Advertising revenue jumped 64% to $762 million, and the company posted its eighth consecutive quarter of >60% revenue growth.
Net income soared 183% to $252.8 million, representing a 31.4% net margin. Adjusted EBITDA climbed 106% to $342.8 million, yielding a 42.6% margin. Operating cash flow of $261.9 million was 32.5% of revenue, up from 22.3% a year ago. The company also crossed $1 million in revenue per employee, a milestone CEO Steve Huffman highlighted as evidence of the "strength of our community model."
User growth remained healthy but decelerated relative to revenue. Daily Active Uniques (DAUq) rose 18% to 130.3 million, while Weekly Active Uniques (WAUq) crossed half a billion, up 24% to 514.6 million. The revenue-per-user story is where the leverage shows: global ARPU rose 36% to $6.18, with U.S. ARPU jumping 51% to $11.85. International ARPU grew 31% to $2.26, still a fraction of the U.S. figure and a long runway for expansion.
The composition of that user growth matters. Logged-out DAUq grew 27% year-over-year, more than four times the 7% growth in logged-in users. This suggests Reddit's investment in search indexing and web visibility is driving discovery traffic, but converting those anonymous visitors into registered, high-value daily users remains the critical challenge. Huffman acknowledged search referrals were "choppy" and more volatile later in the quarter, but noted new app user retention improved 50% year-over-year on a relative basis.
Gross margin expanded 50 basis points to 91.3%. A modest improvement, but notable given the 61% revenue growth. The company is scaling without meaningful cost of revenue inflation, a hallmark of platform businesses with high incremental margins. Non-GAAP operating expenses grew 37% to $392 million, well below the 61% revenue growth rate, producing a 57.7% incremental adjusted EBITDA margin. Revenue grew 1.6x as fast as adjusted costs, a ratio that signals operating leverage is still improving.
Reddit repurchased 1.5 million shares for $235 million during the quarter at an average price of $157.57. The buyback is aggressive for a company that went public just over two years ago, but with $2.8 billion in cash and marketable securities and a net cash position, the balance sheet can support it. The question is whether management sees the stock as undervalued or is simply offsetting dilution from stock-based compensation, which ran at $100.9 million for the quarter, or 12.5% of revenue. That's down from 19% a year ago, a positive trend, but still a meaningful drag on GAAP earnings relative to the adjusted figures.
Q3 guidance came in well above expectations. Reddit expects revenue of $860 million to $870 million, implying roughly 42% year-over-year growth at the midpoint, and adjusted EBITDA of $385 million to $395 million. The midpoint of $390 million would represent a 44.8% margin, an expansion from Q2's 42.6%. This guidance is a signal that management sees the ad momentum continuing despite the choppy search referral environment Huffman described.
The forward read is straightforward. Reddit's monetization engine is firing on all cylinders, and the operating leverage story is real. The risk is that user growth deceleration continues, particularly in the U.S. where DAUq grew only 6%. If logged-in user growth stays in the single digits, the company will need to keep driving ARPU higher to sustain the current growth trajectory. For now, the numbers support the thesis that Reddit is becoming a core part of the digital ad ecosystem, not a niche community platform.