RDDT Q2 Deep Dive: Advertising and AI Initiatives Drive User and Revenue Growth

Online community and discussion platform Reddit (NYSE:RDDT) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 77.7% year on year to $499.6 million. On top of that, next quarter’s revenue guidance ($540 million at the midpoint) was surprisingly good and 14.2% above what analysts were expecting. Its GAAP profit of $0.44 per share was significantly above analysts’ consensus estimates.

Is now the time to buy RDDT? Find out in our full research report (it’s free).

StockStory’s Take

Reddit’s second quarter results received a strong positive market response as the company delivered substantial revenue growth and profitability above Wall Street’s expectations. Management attributed this outperformance to the continued expansion of its advertising business, product improvements aimed at user engagement, and successful marketing campaigns. CEO Steve Huffman highlighted, “Revenue grew 78% year-over-year to $500 million, our fastest quarterly growth rate since 2022,” pointing to a combination of higher daily active users and increased advertiser demand as key drivers this quarter.

Looking ahead, Reddit’s management expects momentum to continue, shaped by further investments in product innovation, international expansion, and AI-driven search capabilities. COO Jen Wong emphasized the focus on “delivering fresh, helpful and interesting conversations to a broader audience and building a best-in-class search product.” Management also indicated that ongoing marketing investments and improvements to advertiser tools are expected to sustain growth, while the integration of new AI features and localization efforts should deepen global engagement.

Key Insights from Management’s Remarks

Management credited the quarter’s results to accelerated advertiser adoption, AI-powered product enhancements, and marketing initiatives to broaden user engagement.

• Advertising platform expansion: Reddit’s advertising business grew 84% year-over-year, with strong adoption of Dynamic Product Ads (DPA), which allow retailers to promote products across Reddit communities. Management reported that DPAs are delivering a return on ad spend roughly twice that of standard campaigns, attracting more advertisers to the platform.
• AI-driven product improvements: The rollout of Reddit Insights, an AI-powered analytics tool, and Conversation Summary Add-Ons, which integrate positive community discussions into ads, were highlighted as key differentiators. According to COO Jen Wong, these features are delivering over 10% higher click-through rates compared to standard image ads.
• International growth momentum: Machine translation now supports 23 languages, enabling Reddit to reach new markets across Asia, Europe, and Latin America. CEO Steve Huffman noted early signs of self-sustaining growth in these regions, supported by localized content and moderator recruitment initiatives.
• User engagement enhancements: Product updates focused on onboarding and personalization are improving the first-time user experience, with Huffman stating that efforts to make onboarding “even more intuitive and search forward” are already showing positive results in retention and engagement.
• Shift in strategic priorities: Reddit is deprioritizing its user economy initiatives to concentrate resources on improving the core platform, expanding search capabilities, and accelerating international growth. Management believes this sharper focus will maximize user and advertiser value in the near term.

Drivers of Future Performance

Reddit’s outlook is shaped by continued investments in AI-powered search, marketing, and international expansion, alongside ongoing enhancements to its advertising platform.

• AI and search product development: Management is prioritizing the integration of AI-powered Reddit Answers into the core search experience, with the goal of making search a central feature for both new and returning users. CEO Steve Huffman described this as unifying “the Reddit search, like traditional search on Reddit, and the new Reddit Answers product.”
• Marketing and user growth: Reddit is increasing marketing spend to drive brand awareness and user acquisition, especially in international markets. CFO Drew Vollero stated these investments will be “modulated by market depending on traction, user retention levels and investment returns.”
• Advertiser automation and scaling: The company is focused on automating its ad platform to make self-serve advertising easier for small and midsize businesses. Wong explained that end-to-end automation and creative generation via AI are key to onboarding a larger advertiser base efficiently.

Catalysts in Upcoming Quarters

Going forward, our analysts will be monitoring (1) adoption and monetization of AI-powered search and Reddit Answers, (2) the effectiveness of machine translation and localized content for international expansion, and (3) the rollout and impact of automated ad tools for small and mid-sized businesses. Progress on these initiatives will be vital indicators of Reddit’s ability to sustain growth and deepen user and advertiser engagement.

Reddit currently trades at $223.60, up from $161.08 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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