Reddit (NYSE:RDDT) reports third-quarter results later this month, and the company has already told investors to expect revenue of $860 million to $870 million. That guidance follows a second quarter in which revenue grew 61%, the eighth straight quarter above 60%. But US daily active users rose only 6% to 53.2 million in the second quarter, while US revenue grew 56%. So American advertisers are paying far more for an audience that is barely getting bigger.
The company runs communities built around nearly every topic, where people ask questions, argue and trade advice, and it sells ads that appear next to those conversations. Its pricing power looks real and will probably keep paying off, though it rests on a US audience that is no longer growing quickly. Investors who want more high-growth stocks can find Reddit in our recent list 10 Best Future Stocks to Buy for the Next 5 Years.
Advertisers Are Paying More Per User
The clearest proof is average revenue per user in the US, which reached $11.85 in the second quarter, up 51% from a year earlier. That jump explains why revenue outran the audience. Reddit’s shareholder letter says advertising growth came from both higher pricing and more impressions, so advertisers are paying more for each ad as well as buying more of them.
Revenue has grown about 57% a year over the past five years, so the second quarter extended a long run instead of starting a new one. Costs have not run away either, since the operating margin sits at 28.25% over the past 12 months. For investors looking to add more fast growers, our list of 10 Best Aggressive Growth Stocks to Buy According to Wall Street Analysts is worth a look.
The US Audience Is the Weak Spot
Within that audience, the group that matters most is barely moving. US logged-in daily users, the people who sign in and tend to stay, rose just 1% to 23.1 million. Logged-out US users, who visit without an account, grew faster.
CEO Steve Huffman told shareholders in the second-quarter letter that search referrals were uneven during the quarter and more volatile toward its end. He added that product work helped offset that pressure, and that retention among new app users improved from a small base. That matters because search is one way new visitors find Reddit, so if it sends less traffic, fewer of them may ever become regulars. For someone holding the stock, that means owning a business whose profit growth depends on advertisers continuing to pay more for roughly the same American crowd. The worry caps the view instead of overturning it, since revenue and margins show no strain yet.
What Investors Pay for Pricing Power
At 20.35 times forward earnings, Reddit trades on a multiple that divides the share price by the profit per share analysts expect over the next year. That is about 59% above the sector median of 12.79, so investors do pay a premium over typical peers. It is also about 62% below Reddit’s own five-year average of 53.92. That gap partly reflects how small profits were earlier on, since the company lost money per share each year from 2022 through 2024 and only turned profitable in 2025. Because the multiple rests on adjusted earnings, it is not the same as reported profit.
91 hedge funds held the stock at the end of the second quarter, up from 70 at the end of the first. That shows more large investors are willing to own the story, though the count only captures who owned shares on one date. If you’re interested in undervalued growth stocks, we recently compiled a report on 10 Undervalued Growth Stocks to Buy Now.
Short sellers, who borrow shares and sell them hoping to buy back cheaper later, hold 15.25% of the float, meaning the shares actually available to trade. A meaningful slice of the market is betting the stock falls, and the soft US user numbers are the obvious argument for it.
The Next Report Checks the US Audience
So the headline’s question has a conditional answer. Reddit can keep charging advertisers more per user, but only while the American audience holds steady. When results arrive, the figure to check is US logged-in daily users, which grew just 1% in the second quarter.
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This article is originally published at Insider Monkey.
