Reddit, Inc. (RDDT) Q4 2025 Earnings Call Transcript

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Overview

The earnings call highlights strong revenue and EBITDA projections, a focus on international expansion, and innovative ad monetization strategies. The Q&A reveals positive sentiment towards AI partnerships and user engagement plans, although some details were vague. Overall, the strategic initiatives and projected financial growth suggest a positive outlook, warranting a 'Positive' rating.

Key Financial Performance

Revenue Total revenue for Q4 2025 grew 70% year-over-year to $726 million. For the full year, revenue grew 69% year-over-year to $2.2 billion. The growth was driven by broad-based strength across objectives, channels, verticals, and regions.

Net Income Net income for Q4 2025 reached $252 million, representing 35% of revenue. For the full year, net income was $530 million, 24% of revenue. This growth was attributed to strong revenue performance and cost management.

Adjusted EBITDA Adjusted EBITDA for Q4 2025 was $327 million, 45% of revenue. For the full year, adjusted EBITDA was $845 million, 38% of revenue. The growth was driven by high revenue growth and efficient cost management.

Free Cash Flow Free cash flow for Q4 2025 crossed $0.25 billion, reaching $264 million, 36% of revenue. For the full year, free cash flow was $684 million, more than triple the amount in 2024. This was due to strong profitability and low capital expenditure.

Daily Active Users (DAU) In Q4 2025, daily active users reached 121 million, up 19% year-over-year. This growth was driven by improvements in user onboarding and engagement strategies.

Weekly Active Users (WAU) In Q4 2025, weekly active users reached 471 million, up 24% year-over-year. The increase was attributed to enhanced user experiences and platform improvements.

Advertising Revenue Advertising revenue for Q4 2025 grew 75% year-over-year to $690 million. This growth was fueled by performance ads, strength across channels, verticals, and geographies, and improvements in machine learning and ad formats.

Gross Margins Gross margins for Q4 2025 were 90%, consistent with the past six quarters. For the full year, gross margins were 91.2%, up 70 basis points year-over-year. This was due to efficient cost management and revenue growth.

Average Revenue Per User (ARPU) ARPU for Q4 2025 grew 42% year-over-year to $5.98. The increase was driven by higher ad revenue and user engagement.

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Operating Highlights

Verified profiles for brands and individuals: Launched in Q4 to preserve authenticity and conversation quality. Plans to expand to bot verification and labeling.

Reddit Answers AI-powered search: Integrated with core search, driving more search volume and queries per user. Released in 5 new languages.

Dynamic Product Ads (DPA): Lower funnel driver with strong performance during Black Friday and Cyber Monday. Enhancements improved advertiser ROAS by 75%.

Reddit Max campaigns: AI-powered campaign platform launched in beta, delivering 17% CPA reduction and 27% conversion volume lift.

Interactive ads and reminder ads: Launched in Q4 to enhance engagement and performance for advertisers.

Revenue growth: Total revenue grew 70% YoY in Q4 to $726 million. Full year revenue grew 69% YoY to $2.2 billion.

Advertising business: Grew 75% YoY in Q4 to $690 million. SMB revenue doubled YoY.

Geographical expansion: U.S. revenue grew 68% YoY, and international revenue grew 78% YoY.

Operational efficiency: Net income reached $252 million in Q4, 35% of revenue. Adjusted EBITDA hit $327 million, 45% of revenue.

Free cash flow: Crossed $0.25 billion in Q4, reaching $264 million, 36% of revenue.

Cost management: Stock-based compensation expense was 13% of revenue in Q4, below the medium-term guide of 1%-3% dilution.

Share repurchase program: Announced a $1 billion share repurchase program to return capital to shareholders.

Leadership changes: Maria Angelidou-Smith appointed as Chief Product Officer to enhance execution and growth.

Ad strategy for 2026: Focus on scaling automation, delivering advertiser value across the funnel, and expanding the Reddit for Business ecosystem.

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Risk or Challenges

Authenticity and Trust in Conversations: The rise of AI-generated content poses a risk to the authenticity and trustworthiness of conversations on Reddit. This could erode user trust and engagement if not managed effectively.

User Retention and Growth: Challenges in improving new user onboarding and retention could impact user growth, engagement, and monetization efforts.

Ad Revenue Optimization: While ad revenue is growing, there is a dependency on machine learning and automation to optimize ad performance. Any inefficiencies or failures in these systems could impact revenue.

Global Expansion and Localization: Expanding international revenue and launching features in new languages require significant investment and operational focus, which could strain resources.

Regulatory and Compliance Risks: Potential regulatory changes or compliance issues could impact operations and financial performance.

Capital Allocation and Share Repurchase: The decision to allocate $1 billion for share repurchase instead of reinvesting in growth initiatives could be questioned if growth slows or if the funds are not effectively utilized.

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Guidance & Outlook

Revenue Projections: For Q1 2026, revenue is estimated to be in the range of $595 million to $605 million, representing 52% to 54% year-over-year growth.

Adjusted EBITDA: For Q1 2026, adjusted EBITDA is projected to be between $210 million and $220 million, representing 82% to 91% year-over-year growth with an adjusted EBITDA margin of 36% at the midpoint.

Stock-Based Compensation (SBC): SBC expenses for 2026 are expected to remain in the high teens as a percentage of revenue, with nominal SBC expenses increasing each quarter.

User Metrics Reporting: Starting in Q3 2026, Reddit will no longer report logged-in and logged-out user metrics, focusing instead on DAUQ and WAUQ metrics.

Ad Strategy for 2026: Key themes include scaling automation through Ads Manager and Reddit Max, delivering more advertiser value across the funnel, and expanding the Reddit for Business ecosystem.

Capital Allocation: Reddit announced a $1 billion share repurchase program, emphasizing a balanced approach to investing in the business, pursuing M&A opportunities, and returning capital to shareholders.

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Shareholder Return Plan

Share Repurchase Program: Reddit announced a $1 billion share repurchase program as a testament to its growth and commitment to delivering for shareholders. The program has no set expiration date and is part of Reddit's strategic capital allocation priorities. The CFO emphasized that the company can simultaneously invest in its core business, pursue M&A opportunities, and repurchase shares due to its strong cash flow and financial position. The company ended the year with nearly $2.5 billion in cash and cash equivalents, enabling it to execute on all three priorities.

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Key Q&A

Q:What are the early benefits of the revamped onboarding flow and the integration of Answers in the web?

A:The revamped onboarding flow has shown that streamlining the process improves retention. Investments are being made into machine learning to improve the cold start feed for new users. Regarding Answers, search queries have grown significantly from 1 million to 15 million over the last year, and overall search queries increased from 60 million to 80 million. The integration of Answers allows for more flexible responses to user queries.

Q:How will Reddit Max streamline onboarding for advertisers?

A:Reddit Max is currently focused on converting lower funnel advertisers. The onboarding of new advertisers is still a few quarters away. Reddit Max aims to make onboarding easier, drive productivity, and improve performance for lower funnel advertisers by reducing friction and supporting acquisition growth.

Q:What are Reddit's thoughts on AI-generated content on the platform?

A:Reddit sees a role for AI-generated content, such as machine translation, to improve communication. However, fully automated bot-like behavior is not allowed unless it is part of the developer program and well-labeled. Reddit emphasizes transparency and intentionality, ensuring that automated or generated content is clearly marked.

Q:How is Reddit positioned for agentic commerce?

A:Reddit is well-positioned as a platform for trusted recommendations, which is critical in the consumer decision journey. While price comparison and execution may become commoditized, Reddit's strength lies in providing recommendations and connecting marketers with customers who make purchasing decisions.

Q:What is the monetization opportunity with logged-out users?

A:Logged-out users and logged-in users see ads with the same impression value. The key difference is engagement. Reddit's strategy is to increase engagement by providing a more personalized experience for logged-out users, which can lead to higher value through increased impressions.

Q:What are the details of Reddit's AI deals with Google and OpenAI?

A:Reddit is the #1 cited source in AI answers. Partnerships with Google and OpenAI are evolving into product partnerships, focusing on bringing users into Reddit's community experience. The goal is to generate more conversation and enhance the partnership flywheel.

Q:What is the impact of Reddit Answers and Search on monetization?

A:Reddit Answers and Search currently do not have monetization but represent a significant market opportunity. These features are incremental and additive to existing engagement, often catering to high-intent, lower-funnel shopping behaviors.

Q:How has pricing contributed to Reddit's revenue growth?

A:Pricing has been a growth driver, driven by Reddit's strategy to deliver more marketing outcomes per impression. This includes increasing click-through rates, conversions, and app installs. Measurement is critical to demonstrating the unique value of Reddit and supporting pricing growth.

Q:What are Reddit's plans for improving the search experience?

A:Reddit is testing different search bar variants, including a larger search bar for better visibility. The goal is to make the search experience more prominent and user-friendly, leveraging the improved search functionality to drive growth.

Q:How does Reddit view citations in LLMs and their impact on user engagement?

A:Reddit aims to use LLM citations to drive users into its community experience. The goal is to differentiate Reddit by connecting users to communities where they can engage in conversations, enhancing the overall user experience.

Q:What is Reddit's approach to brand and performance advertising growth?

A:Reddit is a full-funnel solution, investing in both brand and performance advertising. For brand advertising, Reddit is focusing on unique ad experiences, video optimization, and measurement. Performance advertising growth is driven by new solutions like DPA and Reddit Max.

Q:What is Reddit's strategy for scaling its sales and support teams?

A:Reddit continually invests in its sales force and productivity tools. The company is focused on expanding into new verticals, geographies, and channels. Investments are made based on high ROI opportunities, with immediate returns and measurable impact.

Q:What is Reddit's opportunity with large advertisers?

A:Reddit sees significant headroom with large advertisers, including expanding globally, penetrating more brands within portfolios, and moving into lower-funnel advertising. The company is making progress in laying down infrastructure like CAPI to support these efforts.

Q:What is Reddit's approach to user marketing ROI and M&A?

A:Reddit evaluates user marketing ROI based on costs, user retention, and high gross margins. For M&A, Reddit focuses on acquiring technologies and capabilities that accelerate time-to-market and enhance monetization, particularly in ad tech.

Q:What are Reddit's plans for shopping ads and generative AI tools?

A:For shopping ads, Reddit is focusing on improving machine learning signals and adoption of tools like CAPI. For generative AI tools, Reddit aims to enhance search results with media-rich responses and leverage its strength in answering questions with multiple perspectives.

Q:How is Reddit evolving as a gateway for brands in LLMs?

A:Reddit is becoming essential for brands to appear in LLMs by providing trusted recommendations. The company is helping brands show up well on Reddit through tools like Reddit Pro, which supports organic and paid customer engagement.

Q:How is Reddit addressing the perception of being a niche platform?

A:Reddit is educating advertisers about its scale, with over 0.5 billion monthly users and 120 million daily users. The company is integrating community insights with its ad manager to highlight the platform's reach and scale.

Q:Review of Unclear Management Responses

A:Management avoided providing specific numerical details on pricing contributions to revenue growth and did not break out impressions and pricing numerically. Additionally, they did not provide a clear timeline for when new advertisers would be onboarded to Reddit Max or specific details on the impact of AI deals with Google and OpenAI on revenue.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

RDDT Transcript

Reddit, Inc. (RDDT) Q4 2025 Earnings Call Transcript

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Reddit's earnings call reveals strong financial performance, with record high Adjusted EBITDA and positive cash flow. The Q&A section highlights promising international growth, particularly in France, Brazil, and India, and successful marketing campaigns. However, some uncertainties remain, such as unclear management responses on LLM licensing and AI chatbot referrals. Despite this, the overall sentiment is positive due to strong financial metrics, optimistic guidance, and strategic growth initiatives in international markets and product enhancements.

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The earnings call summary indicates strong financial performance with significant revenue growth and positive guidance for Q2 2025. The Q&A session reveals strategic advancements in advertising and data licensing, along with positive international expansion efforts. Despite some uncertainties in data licensing, the overall sentiment from analysts appears positive, especially with the focus on automation and AI integration. The stock is expected to react positively in the short term, with a potential increase of 2% to 8%.

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The earnings call reveals robust financial performance with 61% revenue growth and record high operating cash flow. Despite some macroeconomic uncertainties, management remains optimistic about sustained user growth and advertising revenue. The Q&A section highlights positive sentiment from analysts, with concerns about data quality addressed and new AI integrations enhancing user experience. The strong financial metrics, optimistic guidance, and innovative product developments like Reddit Answers suggest a positive market reaction, likely leading to a stock price increase.

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