Reddit (NASDAQ:RDDT) just released its third-quarter earnings, and the numbers paint a picture of a company firing on all cylinders.
Revenue jumped 68% year-over-year to $585 million, beating analyst estimates by a wide margin. Advertising, which makes up the bulk of its business — it now accounts for 94% of total quarterly revenue — surged 74% to $549 million, driven by new ad formats and better targeting. Daily active users hit 116 million, up 19% from last year, with U.S. growth at 7%. Average revenue per user climbed 41% to $5.04, showing stronger monetization. Even the “other revenue” segment, mainly from content licensing deals with AI firms like Google and OpenAI, grew 7% to $36 million.
These results highlight Reddit’s ability to capitalize on its community-driven platform in a competitive social media landscape. Since Reddit went public in March 2024, I have been very skeptical of its stock as an investment, especially doubting its ad business as a reliable growth driver. Here’s why I got it so wrong.
My initial doubts stemmed from Reddit’s user metrics. In early analyses, I highlighted how logged-in users were growing slower than logged-out ones, suggesting weak engagement that could hurt ad value.
For instance, in this year’s first quarter, logged-in growth was 23% versus 38% for browsers, making up just 45% of daily users. I argued this would limit advertisers’ interest, as non-engaged users don’t create content or interact deeply. But recent quarters show a reversal: logged-in users were growing at 30%, closing the gap.
Reddit’s investments in personalized feeds and subreddit recommendations have boosted stickiness, proving skeptics like me wrong on engagement as a barrier.
Another blind spot was dismissing Reddit’s content licensing as a minor side hustle. I viewed it as secondary to ads, unlikely to move the needle significantly. Yet, deals with AI giants have exploded. The Google partnership alone brings in $60 million annually, and new pacts with Meta Platforms (NASDAQ:META) and others push this stream toward 15% of total revenue.
Statista data shows Reddit cited in 40% of AI responses, far ahead of Wikipedia. I underestimated how large language models (LLMs) like ChatGPT and Perplexity crave Reddit’s authentic discussions for training. This “secret” revenue isn’t just padding — it’s diversifying away from ad cycles, something I downplayed in favor of warning about regulatory risks.
