Reddit, Inc. (RDDT) posted a Top Tier inflection beat and raise late Thursday. The sheer magnitude of the beat and raise reminds of the best inflection points from the last 18 months. The last time we were this bullish on a name was SEZL, at $70 this Spring, before it went parabolic:
So, it’s not just accelerating top-line growth - from 61% in Q1 to 77% in Q2 - but also, more importantly, RDDT is showing incredible leverage in its model, with EPS rising 850% Y/Y, besting estimates ~140%.
Here is how Reddit's CEO, Steven Ladd Huffman, frames the company:
"In fact, 80% of users in a recent survey that they believe some questions can only be answered by humans as opposed to AI-generated summaries.
For LLM and AI search engines, these conversations and the knowledge they create are essential for training. Platforms like Reddit where people discuss every aspect of life from the trivial to the transformative of a backbone of building AI that actually works. That's why Reddit is the #1 most cited domain for AI across all models per data collected by Profound.
In an automated world that depends on human knowledge, we view Reddit as one of the most important and differentiated data sources. We believe this validates what we've always thought, human conversation is not being replaced by AI, instead, it's becoming more important. AI doesn't invent knowledge, it learns from us, from real people, sharing real perspectives. You can't have artificial intelligence without actual intelligence."
We think Reddit is scaling at an opportune moment in history. For us, the Reddit site is Pinterest x 10, meaning advertisers are able to quickly and accurately target consumers who are perfectly-suited for their products.
After growing 60%+ for four quarters straight, Reddit's rate of growth for its Advertising Division – which accounts for 95%+ of its revenues (licensing revenues to LLMs are its other revenue line) – inflected meaningfully higher from Q1 to Q2:
To wit, between Q1 to Q2 of 2024, Reddit's ad revenues grew 14% sequentially, from $223M to $253M.
In Q1 to Q2 of 2025, its ad business grew 29% sequentially, or TWICE the rate it did in 2024, from $359M to $465M. Simply astonishing.
On a Y/Y basis, its ad revenue growth rate went up 2,300 bps sequentially.
The last time we saw this type of step-up sequentially was SEZL from Q4 of 2024 to Q1 of 2025. Well, we know what SEZL did after that. Take a look at the step-up in RDDT's ad business. Incredible does not even begin to summarize the magnitude and power of this inflection point:
What drove this incredible step up in growth?
More importantly, is it a one-time thing, or, a harbinger of even greater levels of accelerated-growth that will spearhead a multi-quarter inflection in its stock?
Reddit’s incredible momentum is being driven by what we believe is its most significant upgrade to its Ad Stack and most important new product release ever: Dynamic Product Ads.
These Dynamic Product Ads are perfectly suited to match advertisers with consumers who are ready to buy. Of note, 42% of social media users utilize Reddit conversations to make intentional shopping decisions on products before purchasing. This allows advertisers to get their products in front of Reddit Users actually ready to click the BUY button.
Dynamic Product Ads rolled out to their entire client base in mid-May. Considering advertisers are seeing a 2x increase in their Return on Ad Spend, we think the release of Dynamic Product Ads catalyzed the meaningful acceleration in Reddit’s underlying rate of growth.
In June, Reddit also introduced two new AI tools as well:
Reddit’s innovative new product launches are poised to accelerate growth even more dramatically.
The math is very simple when you take a step back and meditate on it.
Think about it. To go from a 61% Y/Y growth rate to an 84% Y/Y growth-rate does NOT just happen overnight, from March 31st to April 1st.
More likely, April was probably a mid-60s growth rate, with May accelerating toward 80%, with June powering to a 90%+ rate of growth. That's the ONLY way you step up 2,300 bps sequentially. And doesn't it make perfect sense, with the Dynamic Product Ad rollout occurring in mid-May?
When viewed from this perspective, we think RDDT is going to absolutely DESTROY Q3 guidance. In turn, Q4 numbers, along with 2026 current consensus, are WAY too low.
More math:
Last year, RDDT grew its Ad Revenues 24% sequentially from Q2 to Q3, from $253M to $315M.
Considering its sequential rate of growth was 100% better from Q1 to Q2 this year, relative to 2024's Q1 to Q2's rate of growth, let's assume RDDT grows its ad revenues 35% sequentially this year.
(We think this sequential rate of growth is super conservative mind you, but let's do the quick math.)
So, $465M in Q2 to $628M in Q3. Then, add in $35M for its Licensing Biz and that gets us to $663M in revenues for Q3. This makes sense, given that Reddit’s ad business exited the quarter, most likely, at a 90%+ rate of growth.
Revenue of $663M translates into a 90% Y/Y growth-rate.
This would mean a $125M beat over consensus.
We like our math. It is even more powerful than our preliminary calculations, late last week, when we first began modeling the name.
Assuming our numbers turn out to be correct, this means Q4 will be guided up massively.
Ultimately, with ad spending typically rising ~18%’ish from Q3 to Q4 each year, we think Reddit will significantly beat that rate-of-growth as new advertisers start to scale as well. Remember, Reddit saw a 50% increase in new advertising clients onboard in Q2 Y/Y…
Initially, we expect a guide up to $700M…
Ultimately, we think Reddit posts Q4 revenue of $825M-$850M in Q4.
Needless to say, the RDDT will explode if our math is right. Again, just as SEZL was easy to model out, ad businesses at secular inflections are easy to model out when the inflection kicks into overdrive.
Here is what consensus looks like currently for Q3 and Q4:
Again, we see $663M in revenues in Q3, or $126M above consensus, with EPS clocking in at $0.80-$0.85.
In Q4, $837.5M is our mid-point revenue estimate – almost 40% above the current consensus. UNREAL. This is almost a 100% top-line Y/Y rate of growth. The incremental Adjusted EBITDA Margin drop down should approach 65% in Q4, with EPS potentially coming in at $1.30-$1.50, well above current estimates.
For FY25, we see $2,392.5M in revenues along with $2.70 in EPS (+500% Y/Y).
For FY26, we see $4B in revenues (+67% Y/Y), along with $5.50 of fully-taxed earnings.
So, we’re thinking triple-digit EPS growth, even with Reddit’s tax-rate going to a full tax-rate next year.
Needless to say, our numbers are well above consensus and we like our math. A LOT:
There IS precedent for this type of growth. A small company called Facebook, now META, grew from $2B to $12B in four years, from 2011 to 2016:
By no means are we saying Reddit is the next META. What we are saying is:
RDDT has strong potential to not just grow strongly in the back half of this year and in 2026. We think this is a multi-year inflection, one that will translate to RDDT getting to $10B in revenues, perhaps as early as 2029.
IF the move in APP - which we recommended at $50 early last year - is any near-term precedent, RDDT has strong potential for not just $300, but also, $400-$500 by early 2027.
From an institutional accumulation perspective, in the last six quarters, APP has seen its institutional fund ownership increase 150%, from 904 funds to 2,343 funds long. Take a look:
RDDT exited Q2 with ONLY 949 funds long. And RDDT has 120M less shares outstanding than APP. So, $300, or a $60B cap may be too conservative of a target by the first half of next year when considered from this angle.
We are hard-pressed to find any company matching Reddit’s growth profile for the next six quarters.
Revenues should average 80% growth the next 4 quarters, with EPS growth rates inflecting to 400%-600% over the next 2-3 quarters.
A 55x multiple is an easy starting point for RDDT off of our expectations for earnings to grow 1,000% over three years. So 55x $5.50 in EPS gets us to $302.50. A 75x multiple would not surprise us at its most parabolic moment the next 3-4 quarters. That would get the stock to $412.
We gleaned an important data point from a smart friend late on Friday. This contact knows the Head of Ad Sales at a well-known data-oriented financial firm in NYC. The Head of Ad Sales commented that all the major brands at Cannes in May were "leaning HEAVILY into Reddit the 2nd half of this year."
So, this is a welcome Top Tier data point that helps support our math. Think of it as an on-the-ground, highly-reliable data point from an Expert Network Call right there.
In conclusion, we are more bullish on RDDT than any other company from this earnings season. Reddit’s growth profile is unmatched and its stock demonstrated incredible relative strength the last two days.
While the market correction could potentially extend through August, and another 3% lower to the 50-day SMA's on the QQQ and SPY, we think RDDT is going to boomerang higher on the other side of this selloff.
Heck, our math is so powerful, we attach better-than-even odds that RDDT powers through $200 and works its way to recent 52-weeks highs, near $230, much faster than anyone is currently thinking about.
Clearly, another slowing jobs report in early September could further the correction and hold back RDDT.
Also, the #1 holder in RDDT owns 40M shares. A secondary by this holder could dent the stock in the short-term. But considering RDDT will now trade 10-12M shares a day, its ENTIRE FLOAT will be turned over in the next month.
Naturally, our math could also be off and too aggressive. However, our track record suggests high odds for going with our math, particularly, for companies like SEZL and RDDT. Both have very similar profiles where revenues are the slowest in Q1 and then build meaningfully throughout the year.
RDDT is our Top Pick for the rest of the year and it is an oversized #1 allocation in the accounts we oversee. Writing this piece made us want to buy more and that is what we intend to do tomorrow.
STOP LOSS: We are using a Time Stop, in place until Q3 numbers.
When you get something special, with limited downside, and very strong odds of upside potential, our goal is to ride that stock and trend as long as we can. It is rare to find such a Top Tier Inflection in an economy that is clearly slowing down.
We rate RDDT with a 10 conviction.
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Disclosure: We are currently long both RDDT stock and calls on RDDT in the accounts we oversee. We may change our positioning at a moment’s notice, without notifying you of any such moves.
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