Reddit (NYSE: RDDT) posted a clean Q3 beat. Revenue hit $895 million, 2.3% above the $874.8 million consensus, while diluted EPS of $1.40 cleared estimates by $0.07. Revenue climbed 53% year-over-year. Net income surged 74% to $283 million.
The numbers paint a platform extracting more from every commercial lever. Advertising revenue reached $847 million, up 54%, lifted by higher pricing and impressions. International revenue jumped 67%; U.S. revenue rose 50%. Gross margin widened 50 basis points to 91.5%. Adjusted EBITDA hit $402 million, a 45% margin that expanded 460 basis points from the prior year. Operating cash flow nearly doubled to $364 million. Free cash flow came in at $363 million. The company also wrapped its first quarter as an S&P 500 constituent and repurchased $100 million of Class A stock at an average price of $149.81.
Beneath the surface, user metrics and forward guidance carry a warning. Global DAUq grew 12% to 130.3 million. U.S. DAUq fell 2% to 50.7 million. That domestic drop is the signal to watch.
Management disclosed that search referral traffic declined meaningfully in Q3, with the acceleration coming late in the quarter. Logged-out and web traffic took the brunt, though some bleed reaches logged-in and app users since search referrals often serve as reengagement hooks.
Q4 revenue guidance of $1,000 million to $1,030 million implies roughly 12-15% sequential growth from Q3's $895 million, reasonable for a seasonally strong period. The adjusted EBITDA guidance of $480 million to $510 million points to margins of 48-50%. Management expects operating leverage to keep improving even as they spend to counter the traffic loss.
The search referral decline dominates the risk picture. In October, management said, search traffic dropped by more than 1 million referrals per week on average. Sustained at that rate, total DAUq could fall by a low-double-digit percentage from the 130 million base in Q4. That would place Q4 DAUq around 115-117 million, a material sequential contraction. Reddit is responding with user marketing, product improvements, and a planned shift to logged-in-only access in select international markets.
Logged-in and app DAUq, which management labels their most engaged and monetizable users, grew sequentially in both the U.S. and rest of world. These users drive over 80% of monetization. The logged-in-only transition, testing in Q4 outside the U.S., mirrors moves by other ad-based platforms. Better ad targeting and data protection are the prizes. Poor execution risks accelerating logged-out attrition.
The buyback pace looks aggressive given the uncertainty around user growth. Reddit deployed $100 million in Q3, roughly 670,000 shares at $149.81, or about 0.3% of fully diluted shares. With $3 billion in cash and marketable securities, the balance sheet can handle it. Buying back stock while the core acquisition channel deteriorates signals confidence that may not be fully warranted until search referral trends stabilize.
Two questions shape next quarter: whether logged-in-only tests in international markets convert at rates that offset search losses, and whether the sequential U.S. DAUq decline reverses. The revenue beat is real. The user story just got more complicated.