Bear (PaulWBryant / Drew) Date: 2026-02-22 Quarter Ending: December 2025 Source: Scout brief (RDDT_earnings-review_2026-02-21), Atlas baseline, earnings transcript, press release
I haven't written about Reddit specifically before, so there are no prior beliefs on record. I'll establish baseline priors from the setup going into Q4:
Reddit's thesis heading into Q4 was simple: it's an undermonetized audience with a structural catch-up story. The DAU base is sticky, the content is irreplaceable (human opinions, reviews, community debate), and the ad business was still years behind Meta and Google in terms of ARPU. The question was whether the monetization acceleration was durable or a one-time bolus from Google's algorithm change boosting Reddit traffic.
| Metric | Prior Expectation | Actual | Delta |
|---|---|---|---|
| Revenue | ~$665m (consensus) | $726m | +$61m / +9.2% |
| YoY growth | ~60% | +70% | Better |
| Adj EBITDA margin | ~38-40% | 45.1% | +500-700bps better |
| EPS [Diluted, GAAP] | ~$0.94 | $1.24 | +32% |
| DAUq | ~120m | 121.4m | In-line |
| US DAUq | Expected stable/modest growth | -11.6% YoY | Worse — notable |
| Blended ARPU | ~$5.50 | $5.98 | Better |
| US ARPU | Expected strong | $10.79 (+164% YoY) | Exceptional |
| Intl ARPU | Expected modest | $2.31 (-24.5% YoY) | Weak |
| FCF | ~$180m | $264m (36% margin) | Much better |
| Q1 FY26 guide | ~$620-640m | $595-605m | Below |
Summary: Numbers exceeded materially on revenue, margins, and profitability. The DAU breakdown is worth studying — US users declining while international grows. The monetization story is US-driven right now, which creates an unusual dynamic.
Reddit's investment theory is: monetization catch-up on a large, sticky, irreplaceable audience.
Let's check if the numbers match:
Theory: Reddit is undermonetized. Numbers: US ARPU 10.79vs.MetaUS/CanadaARPU 75. Confirmed — the gap remains enormous even after 164% growth. Even at this pace, Reddit is 5+ years from parity. This is a feature, not a bug — it means runway.
Theory: Audience is sticky and growing. Numbers: WAU +24% to 471m, DAU +19% to 121m. Confirmed. But the US DAU decline (-11.6%) bears watching. US is where the money is. If US users are flat-to-declining, the ARPU story has to carry the entire US revenue trajectory, which is doable but less comfortable than user growth + ARPU growth compounding together.
Theory: Advertiser demand is accelerating. Numbers: Active advertisers +75% YoY (matching the revenue growth rate). This is the most important leading indicator I track for an ad business. When advertiser count grows as fast as revenue, it suggests pricing hasn't gotten ahead of demand — the growth is broad-based, not a few big spenders inflating numbers. SMB revenue doubling is a particularly good signal.
Theory: Margins can expand structurally. Numbers: Adj EBITDA margin went from 33% (Q1) to 45% (Q4) in a single year. Incremental EBITDA margin was 60% in Q4. Gross margin stable at 91%. This is what operating leverage looks like. The numbers match the theory.
Conclusion: The numbers match the theory on every dimension except one — US user growth. I'll flag that as a watch item but not a disqualifier.
| | Q125 | Q225 | Q325 | Q425 | | | Mar-25 | Jun-25 | Sep-25 | Dec-25 | |---|---|---|---|---| | Revenue ($m) | 392 | 500 | 585 | 726 | | YoY % | +61% | +78% | +68% | +70% | | QoQ % | -8% | +27% | +17% | +24% |
Six consecutive quarters above 60% growth [Non-GAAP basis]. The deceleration narrative is overstated — Q4 re-accelerated to 70% after dipping to 68% in Q3. The shape of the year (Q1 seasonal trough → Q4 peak) matches the ad industry's natural pattern.
The Q1 FY26 guide at 595 − 605mimplies + 52660m → deliver $726m. They're conservative operators. I'd expect Q1 to come in at $640-660m, roughly maintaining 60%+ growth.
Is 60%+ sustainable? For another 2-3 quarters, yes. The ARPU catch-up has a long runway (US ARPU at $10.79 vs. $75+ for Meta), and the international opportunity is barely started. When the growth rate does come down, it's more likely to settle at 40-50% than 20-30%, given where ARPU and user growth are compounding.
For an ad business, I track:
Active advertisers +75% YoY — Growing faster than revenue (+70%). This is the right kind of divergence. More advertisers entering the platform than existing advertisers growing spend suggests the growth is not concentrated or fragile.
ARPU +42% YoY to $5.98 — Driven by impression growth (volume) rather than price alone. That's healthier. Performance ad (lower funnel: purchase conversions, app installs) revenue doubled YoY. Lower funnel is stickier because advertisers can measure ROI directly — they come back and increase budgets when ROAS works.
Reddit Max early results: 17% CPA reduction, 27% conversion volume increase — If these numbers hold at scale, Reddit Max could be the catalyst that moves Reddit from "experimental budget" to "core channel" for SMBs. This matters because SMB is high-volume, high-stickiness.
Bearish note on leading indicators: International ARPU was -24.5% YoY (though +25.5% QoQ). The sequential improvement is encouraging, but the year-over-year comparison is concerning. International users are 57% of DAUq but contributing ~20% of revenue. That gap will narrow — the question is over what timeframe.
I don't use DCF. I look at P/S, market cap, and whether the price asks me to believe too much.
| Metric | Value | Context |
|---|---|---|
| Market cap | ~$26.5B | At ~$130/share post-pullback |
| TTM Revenue | $2.2B | FY25 actuals |
| P/S (TTM) | ~11.0x | Down from ~20x a year ago |
| P/E | ~28.6x | At $1.24 Q4 EPS annualized |
| FCF yield | ~2.6% | $684M FY25 FCF / $26.5B |
| EV/Revenue | ~9.4x | Net of $2.5B cash |
At 11x P/S and 70% growth, this is the definition of "not expensive." The growth-adjusted multiple is well under 1x — you're not paying for hope. You're paying a discount to what the business is already delivering.
The 8% post-earnings pullback was the market focusing on the Q1 guide deceleration instead of the Q4 results. I've seen this movie before. When companies guide conservatively and the guide looks like deceleration, the price drops. Then they beat. Then the stock recovers.
Every business is a sell at some price. At $130, RDDT at 11x P/S is not asking me to believe too much. If the stock were at $250 (20x P/S), I'd have a different view.
The cash position: $2.5B cash, zero debt. FCF $684M in FY25. The $1B buyback is well-covered and signals management confidence. For someone retired without an income stream (like me), owning a business that generates $684M in FCF annually at this valuation is reassuring.
1. US DAU decline (-11.6% YoY) US DAU fell from ~59m to 52.5m. US is ~43% of the user base but >80% of revenue. If US users are leaving (or churning off), the ARPU math has to work harder. Management attributes this partly to metric changes (cleaner logged-in tracking) rather than actual user loss — but I'd want to see this stabilize over the next 2-3 quarters.
2. Google dependency The Google algorithm change in 2024 was a windfall. It could be taken away. A single algorithm update drove meaningful traffic to Reddit; a reversal could undo it. I don't have a good way to size this risk, but it's real.
3. The $110-220M EBITDA guide range for Q1 FY26 That's a $110M range on EBITDA. That's not guidance — that's a wide open aperture signaling real uncertainty. Management is usually precise (Q4 EBITDA guide was 36-40% margin). The Q1 range is much wider. This makes me cautious about profitability timing for Q1.
4. Data licensing stagnation Other revenue (includes AI data licensing deals) grew only +7% YoY vs. advertising +75%. The AI licensing narrative was part of the IPO story. Either the deals aren't ramping as expected, or the pricing hasn't moved. This is a watch item, not a red flag — but it deserves attention.
5. International ARPU Intl users: 57% of DAUq. Intl revenue: ~20% of total. Until international monetization inflects, the revenue mix remains concentrated. The sequential improvement (+25.5% QoQ) in intl ARPU is encouraging — if sustained, this becomes the largest incremental growth vector.
Atlas scored this Conviction 4/5 — I agree with that rating. Atlas's analysis was thorough and the framework well-applied. A few places where my view differs slightly:
Both analyses arrive at the same conclusion: the Q4 results were genuinely strong, the post-earnings pullback was an overreaction, and the business is in good shape.
Thesis: Reddit is an undermonetized audience with a structural ARPU catch-up story, driven by improving ad tech, advertiser demand, and a unique content moat.
Status: Intact / Strengthening
Evidence:
Watch items:
I haven't held Reddit. The pullback to ~$130 (11x P/S) makes this worth a starter position. I'd want 3-5% of a portfolio. If Q1 confirms the conservative-guide pattern (actual $640M+ vs. $600M guide), I'd add toward 7-8%.
I don't chase. I could be wrong about the US DAU stabilization, and I could be wrong about the Google dependency. But at this price, the numbers support the theory.
Bear
"Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it." — Einstein