Date: 2026-02-22 Quarter: Q4 FY25 (ended Dec 31, 2025) Prior Joe Coverage: None — first analysis
OK, so I've been watching Reddit from the sidelines since the IPO, and I'll admit I've been skeptical. Social platforms live and die by monetization, and for a long time Reddit looked like a great community with a middling ad business. The "could be" voice in my head kept saying: "But imagine when they actually figure out the ad stack..."
Well. They figured out the ad stack.
Q4 FY25 was a legitimate beat — not a squeaker, not a rounding-error beat:
| Metric | Consensus | Actual | Beat |
|---|---|---|---|
| Revenue | $665M | $726M | +9.2% |
| EPS [GAAP] | $0.94 | $1.24 | +32% |
| Adj EBITDA Margin | ~40% | 45.1% | +500bps |
| FCF | — | $264M (36% margin) | — |
That's a real beat. $61M above on revenue, $0.30 above on EPS. Four consecutive quarters of beats. The pattern is intact.
Q1 FY26 guide of 595 − 605M(600M midpoint) came in below street expectations — consensus was likely $620M+ — and the stock dropped ~8%. That's what happens when you've priced in perfection. But here's how I think about it: Reddit has guided conservatively and beaten every quarter since IPO. Q4 itself beat its implied guide by 10%. A single cautious quarter guide doesn't break the thesis.
| | Q1 FY24 | Q2 FY24 | Q3 FY24 | Q4 FY24 | Q1 FY25 | Q2 FY25 | Q3 FY25 | Q4 FY25 | | | Mar-24 | Jun-24 | Sep-24 | Dec-24 | Mar-25 | Jun-25 | Sep-25 | Dec-25 | |---|---|---|---|---|---|---|---|---| | Revenue ($M) | 243 | 281 | 348 | 428 | 392 | 500 | 585 | 726 | | YoY % | 48% | 54% | 68% | 71% | 62% | 78% | 68% | 70% | | Gross Margin % [GAAP] | 88.6% | 89.5% | 90.1% | 92.6% | 90.5% | 90.8% | 91.0% | 91.9% | | Adj EBITDA Margin % | 4.1% | 14.0% | 27.0% | 36.1% | 29.4% | 33.4% | 40.3% | 45.1% | | Net Margin % [GAAP] | -2.4% | -3.6% | 8.6% | 16.6% | 6.7% | 17.8% | 27.9% | 34.7% | | FCF Margin % | 12.0% | 9.7% | 20.2% | 20.9% | 32.3% | 22.2% | 31.3% | 36.3% | | EPS [GAAP] | -8.19* | -0.06 | 0.36 | 0.36 | 0.13 | 0.45 | 0.80 | 1.24 | | DAUq (M) | 83 | 91 | — | 102 | 108 | 110 | 116 | 121 | | ARPU (DAUq) | $2.94 | $3.08 | — | $4.21 | $3.63 | $4.53 | $5.04 | $5.98 |
*Q1 FY24 EPS distorted by one-time $1.1B IPO-related SBC charge.
Here's how I'm thinking about it. When I first saw Reddit, it was almost entirely a "could be" story:
What's changed is that the "is" case is getting real traction:
What Reddit IS delivering:
What is still "could be":
The balance is shifting toward "is" faster than I expected. The ad platform is working. The question now is whether ARPU can sustain and expand.
US ARPU went $4.09 → $7.87 → $9.04 → $10.79 over four quarters. That's extraordinary. For context, Snapchat's US ARPU has historically been in the $6-8 range. Pinterest is around $5-6. Reddit has lapped them.
But — and this is important — this growth rate can't persist indefinitely. At some point US ARPU stabilizes. The question is: does it stabilize at 12 − 15asadvertiseradoptionmatures, ordoesitkeepcompoundingtowardMeta − likelevels(50+)?
I lean toward a middle path. Reddit has something Meta doesn't: communities with intent. When someone asks "best running shoes for flat feet" on Reddit, that's a buyer. The targeting quality is high. That should support premium ARPU. But Reddit is also smaller scale and doesn't have Meta's algorithm or data moat. I'd model ARPU stabilizing somewhere in the $15-20 range for US over 2-3 years, with international as the incremental upside.
At $15 US ARPU on ~55M US DAUq and $5 Intl ARPU on ~90M Intl DAUq (reasonable 2027 numbers), you get to roughly 3.3B−3.5B in ad revenue. That's roughly 50%+ growth from FY25 levels without any heroic assumptions. The math works.
Q1 FY26 guide: $595-605M revenue, $216M Adj EBITDA (36% margin).
The revenue guide implies 54% YoY growth vs Q1 FY25's $392M. Still fast. The -17% QoQ sequential decline is seasonal — Q4 is always the peak ad quarter (holiday), Q1 drops back. Reddit did -8% QoQ in Q1 FY25.
What bothered the market was: (1) revenue came in below street's ~$620M expectation, and (2) the EBITDA range was absurdly wide: $110M to $220M. That wide range signals management has real uncertainty about Q1 macro/ad spend conditions. That's honest, but it's also not reassuring.
Here's how I square it: Reddit has beaten every quarter. The pattern is conservative guide → beat. If that holds in Q1 FY26, we print $640-650M and the narrative flips. If it doesn't hold and they come in at $600M, the thesis is still intact — 54% YoY growth is still excellent. The only scenario I'd worry about is a meaningful miss below $580M, which would signal real advertiser pullback.
The wide EBITDA range bothers me slightly more than the revenue guide. They're signaling they don't know how much they'll spend. That could be strategic flexibility (good) or cost control uncertainty (less good). I'd want to hear more about this on the Q1 call.
$2.5B cash. Zero debt. FCF of $684M in FY25 — more than triple the prior year.
$1B buyback announced. At $26-28B market cap, that's roughly 3.5-4% of shares over time. Meaningful but not aggressive. The signal matters: management is confident enough in the business to return capital rather than hoard it.
SBC guidance of "high teens" % of revenue for FY26 — call it 18%. At a $2.5B+ revenue run rate, that's $450M in annual SBC. That's high. GAAP earnings will always be suppressed vs. Adj EBITDA by this number. I'd prefer to see this come down as the company matures, but for a recently-IPO'd company, it's not alarming.
The part of the RDDT story I can't fully dismiss is Google dependency. Reddit's traffic surge is meaningfully driven by Google's 2024 algorithm update that boosted Reddit in search results. If Google reverses that — either intentionally (regulatory pressure to not favor one platform) or via algorithm evolution — Reddit loses a material tailwind.
I don't know how to size this risk. Nobody does. Management doesn't talk about it much because there's nothing they can do about it. But it's real, and it's the kind of single-point risk that can't be diversified away at the company level.
Steve Huffman has been at the helm since the early days. The "most human place on the Internet" positioning is clear and differentiated — especially relevant as AI-generated content floods the web. I give him credit for the narrative discipline.
On execution: the beat-and-raise pattern speaks for itself. Four consecutive beats. Margin expansion from single digits to 45% in two years. The ad product improvements (DPA, Reddit Max) are showing real advertiser ROI.
The miss-and-lower radar is quiet. No red flags on management credibility.
The CPO hire (Maria Angella Dew Smith in Q4) is worth watching. Product execution matters enormously for Reddit's next phase. New C-suite additions in the context of strong results are neutral to positive — new skills being brought in vs. a leader being replaced in crisis.
This was not a thesis-neutral quarter. This was a thesis-strengthening quarter.
The "is" case got materially stronger:
The "could be" optionality is still there and largely unpriced:
The risk I'm most watchful of: Google algo dependency. This one doesn't show up in the financials until it does.
I don't currently own RDDT. Coming out of this review, here's how I'm thinking about sizing:
Tryout. 2-3% position.
Here's why I'm not going straight to starter:
But I want a position because: (1) the "is" case is getting real, (2) the beat-and-raise pattern is intact, (3) ARPU has legs, and (4) the secular tailwind (authentic human content in an AI noise world) is playing to Reddit's unique strengths.
If Q1 beats and Intl ARPU continues its Q4 inflection (+25% QoQ), I'd move RDDT to starter territory.
This is my first formal look at RDDT, so I don't have prior written beliefs to compare against. But I've been skeptical of the monetization story for a long time — "great community, middling ad business."
Q4 FY25 updated that view substantially. The ad business is no longer middling. US ARPU at $10.79 and active advertisers +75% YoY are signals I can't ignore.
As usual, thanks for reading.