Reddit (Minutes): There are still user penetration opportunities among specific groups in North America
The following is a summary of the FY25Q3 earnings call for $Reddit(RDDT.US) organized by Dolphin Research. For an interpretation of the financial report, please refer to "Reddit: Another Surprising Surge, How to View the Expectation Gap Before and After the Earnings Report?"
I. Review of Core Financial Data
Performance Overview
User Scale: Daily Active Users (DAU) reached 116 million, and Weekly Active Users (WAU) reached 444 million, both increasing by approximately 20% year-over-year.
Revenue Performance: Total revenue was $585 million, up 68% year-over-year.
Profitability: GAAP net income was $163 million, with a net profit margin of 28%, an increase of $133 million from last year; adjusted EBITDA margin reached 40%, achieving the profitability target set at the time of the IPO.
Cash Flow: Third-quarter cash flow was $183 million, with a free cash flow margin of 31%; over the past 12 months, more than $500 million in free cash flow was generated.
Cash Position: Cash and cash equivalents on the balance sheet increased to $2.2 billion.
Regional Performance: Revenue from the U.S. domestic and international markets grew by 67% and 74% year-over-year, respectively.
Average Revenue Per User (ARPU): Increased by 41% year-over-year to $5.04, with room for improvement as the absolute value remains low.
II. Detailed Information from the Earnings Call
2.1 Key Executive Statements
(1)Product and User Growth Strategy
Market Position: According to Semrush data from October 2025, Reddit has become the third most visited website in the U.S., trailing only YouTube and ahead of Amazon.
Core Product Direction: Focus on three core areas—core product, search functionality, and internationalization.
Core Product: Redefining the Reddit experience with a modern search-oriented interface, optimizing the new user onboarding process, and using AI to interpret subreddit rules and provide posting insights.
Search Functionality: Over 75 million people searched on Reddit weekly in the third quarter; Reddit Answers has been integrated into the core search function to enhance visibility in various discussions and is gradually expanding to non-English versions.
Internationalization: Machine translation now covers 30 languages; the local content framework strategy has been effective in India and is being extended to Australia, Brazil, Germany, and France.
Community Management: Moderator tools have been applied to over 3,000 communities, with the average number of active moderators increasing by 30%.
(2) Advertising Business and Monetization Progress
Advertising Revenue: Third-quarter advertising revenue was $549 million, up 74% year-over-year.
Advertiser Base: The total number of active advertisers increased by over 75% year-over-year, with new accounts added across all channels, covering large enterprises, mid-market, and small and medium-sized businesses.
(3) Advertising Tech Stack Optimization:
(a) Model Optimization: Improvements to models targeting lower-funnel app ad objectives resulted in double-digit percentage performance gains; optimization of lower-funnel conversion goals led to over 20% performance improvement.
(b) Shopping Solutions: Dynamic Product Ads (DPA) continue to outperform core conversion goals but currently account for only a small portion of total lower-funnel revenue.
(c) Measurement Tools: Conversion revenue covered by CAPI tripled year-over-year.
(d) Automation Platform: Early test results of the end-to-end automated advertising platform show that advertisers achieved higher ROI while reducing management time.
Featured Ad Formats: Conversation summary add-ons: Game publisher Befesa saw a 15% increase in click-through rates.
Free-form Ads: FootJoy's click-through rate increased by 100% compared to the benchmark, with user dwell time exceeding the benchmark by over 50%.
Interactive Ads: Based on the developer platform, allowing the creation of customized experiences such as mini-games or quizzes, currently in the testing phase.
(4) Financial Strategy and Operational Efficiency
Five Financial Strategies: Differentiated revenue growth, expanded profit margins, profitable expansion, positive cash flow, and minimized dilution effects.
Cost Control: Adjusted total costs increased by 37% year-over-year, with operating expenses growing by 35%, nearly half the revenue growth rate (68%).
Investment Focus: Expansion of the sales team (approximately 70% of new positions this quarter were in sales, marketing, and ad tech) and brand promotion and user marketing.
Equity Management: Total fully diluted shares outstanding were 206.1 million, showing a downward trend compared to the previous quarter and the same period last year; stock-based compensation expenses decreased from 19% to 16%.
(5) Future Outlook and Guidance
Guidance for Q4 2025:
Revenue: $655 million to $665 million, up 53% to 55% year-over-year.
Adjusted EBITDA: $275 million to $285 million, up 78% to 85% year-over-year, with a midpoint corresponding to a 42% adjusted EBITDA margin.
Strategic Focus: Enhance user retention by optimizing user experience to expand the app user base; expand user groups and community types in the U.S. and globally; drive top-of-funnel growth through diversified traffic sources; expand monetization scale and enrich ad formats for users and partners.
International Progress: Growth in France, Brazil, and India is particularly notable, thanks to machine translation, local content frameworks, marketing campaigns, and local partnerships.
2.2 Q&A Session
Q: Regarding user growth trends, especially for the fourth quarter and beyond, and progress in traffic diversification? Additionally, regarding the Answers feature, now embedded in search results and covering 75 million weekly active users, what are the engagement trends for these users? Are they more active, asking more questions?
A: In terms of user growth trends, the third quarter achieved a good balance of organic and paid growth. External search remained stable, with product initiatives (including machine translation) being the largest contributing factor. Marketing coverage is broad, but we aim to focus on growing the most valuable users within the app and improving ROI. As we enter the fourth quarter, we are starting from a higher-than-average baseline.
In the long term, we are truly focused on sustainable growth driven by products. Our goal is to increase visit frequency, which means focusing on the user experience of the first session to improve retention and thus drive growth.
Regarding Answers, the integration is progressing well, and our goal is to build a globally unified and modern search experience. Currently, about 20% of our search volume is handled through Answers or the core search box, with full integration to be completed in the coming quarters.
We have recently expanded Reddit Answers to non-English languages: Spanish, German, Italian, French, and Portuguese. Search is an action many users take during their first session, so it is part of the overall onboarding and retention strategy, ensuring new users get excellent and differentiated results when searching on Reddit, which should translate into improved retention, hence its prioritization.
Q: Regarding Publisher Pro, is there a revenue opportunity, or is it primarily aimed at introducing new content and driving user engagement?
Additionally, in terms of user marketing, how are you positioned in domestic and overseas markets? Is there an intention to increase user marketing spending in the future?
A: Reddit Pro is primarily about creating value for the platform. Publishers inject vitality into communities because they bring content. Reddit Pro provides them with a "home" on Reddit. More engagement on the platform translates into revenue. Reddit Pro also allows businesses to have their own profile page on Reddit and use tools to gain insights into who is discussing their brand or products, which could become potential sales leads for our ad platform. Specifically for publisher tools, our vision is to help publishers bring their content to Reddit, which could be in various formats such as text, video, etc. This will increase the platform's content and vitality in multiple ways.
Regarding user marketing, we are currently in test mode. We focus on multiple dimensions, including top and bottom funnel spending, conducting both brand placements and seeking conversions, with investments in both the U.S. and international markets.
Last quarter's spending was about a low single-digit percentage of revenue, and this quarter it is in the low to mid-single-digit percentage range. We focus on user quality, ROI, and user retention curves. If we find meaningful areas, we are not afraid to invest, and we do have the capacity to invest. We are trying to understand how to drive platform usage, and if we find reasonable areas, we are willing to invest. Our spending has remained stable over the past few quarters, and if we see progress, we may increase investment in the future.
Q: Regarding new marketing campaigns, can you talk about the current returns and gains? How does the engagement of users acquired through performance advertising compare to existing users? How does the login conversion rate of users acquired through these channels compare to the company's average?
A: We have conducted some brand campaigns in markets outside the U.S. (such as France) because our awareness in these markets is relatively low. We have seen brand campaigns lead to an increase in Reddit app installations, and brand awareness and consideration have also improved, laying the foundation for subsequent performance marketing. In terms of performance marketing, we have never conducted large-scale marketing before, so we need to build the infrastructure for marketing and targeting. We have gained some experience through investment, but there is still more to learn.
We see opportunities to grow specific audience groups, such as in the U.S., we have rich content in parenting, sports, and gaming, but about half of U.S. parents don't even consider using Reddit for parenting content, and currently, only a quarter are using Reddit, which is a huge opportunity. This requires both awareness enhancement and performance marketing. We are optimizing the login page experience, testing how to present the best content mix from different communities (such as dad, parenting) to new users to find the best presentation for that audience. Once we test successfully with one audience group, we hope to expand to other groups. We see similar opportunities in many verticals, and this is our approach.
Q: Regarding the simplified user onboarding process, are there any early results to share? Additionally, how much does traffic from AI chatbots contribute to overall traffic? What trends have you observed? Are there specific measures to improve this, or is it not very important to you?
A: Regarding the simplified user onboarding, we will soon launch an improved version to obtain early results. Intuitively, this makes sense. We believe Reddit has some of the best content on the internet, but currently, users have to go through several layers of interaction before they truly see the content. Therefore, we are about to test significantly simplifying or even removing these steps and ensuring users land on pages relevant to them. This part of the work is still in a very early stage, but we are excited about its potential.
Regarding traffic from chatbots, they are not currently a traffic driver. Our relationships with companies we directly collaborate with are healthy, and over the past few years, we have both learned a lot, truly understanding the value of Reddit data, the direction of our respective product developments, and how we can help each other. I look forward to continuing to advance these efforts with these partners, but they are not currently a major traffic source. However, I believe there are many opportunities as we continue to collaborate.
Q: Regarding large language model licensing, what is the progress of agreements with existing or non-partners? For companies involved in litigation, why do they believe they can use your intellectual property without paying? Additionally, are there any collaborations to obtain the identity of non-logged-in users to help with ad targeting?
A: Regarding large language model licensing, there is no new information to share at this time. Our relationships are very healthy and collaborative, and both sides have learned a lot, better identifying areas where we can help each other improve products and create better consumer experiences. I look forward to continuing to advance this work with our partners.
Regarding litigation, I cannot add more information; our litigation documents are worth reading as they contain a lot of information. Your third question about obtaining the identity of non-logged-in users, Reddit's entire philosophy is centered around connecting users with their interests rather than focusing on who they are or their demographic information. We understand users through their explicit interests on Reddit (e.g., whether they are members of a skiing community or come from a parenting blog). This is a different model, but it is more beneficial for user privacy, and we can target on a unique and powerful dimension.
Q: Regarding non-logged-in users from search, what is the product roadmap for improving their experience? And for 2026, what exciting lower-funnel products are there? What should investors focus on for the biggest near-term impact?
A: Regarding non-logged-in users from search, our focus is on growing logged-in app users. We achieve this in two ways: one is converting some search users into logged-in users, and we can do more in this area, such as showing these users the posts they arrive at and a summary of Reddit answers on the topic, which helps increase their engagement. But I think the biggest opportunity lies in users who open the Reddit app for the first time, where we have the greatest chance to provide them with a better experience, improve their retention, and drive app growth.
Regarding lower-funnel products, there are three main areas I am excited about: first, the engine automation we have been testing, which makes our platform easier to use, allowing thousands of advertisers who are not yet using Reddit (including some small advertisers) to activate and onboard more easily, and enabling us to provide them with better results. Second, shopping features, we are very satisfied with the shopping results brought by Dynamic Product Ads (DPA), and we have announced a partnership with Smartly, part of which includes collaboration in the shopping area. We are optimistic about the opportunities in the shopping field. Third, the ongoing work in app installations, we have been improving measurement and attribution, as well as the process of becoming a SAN. This is very powerful in terms of measurement, ensuring advertisers see all the value we provide and providing signals for machine learning to achieve stronger app installation optimization.
Q: Regarding the user onboarding process, historically, there have been many steps and the need to select interest tags, with the goal of simplification. With the trial of the new process, is it close to the stage of full rollout? How should we view the current progress and future rollout plans?
A: Yes. We want to remove these steps. We believe the best showcase of Reddit is its content itself, and ensuring the first information flow experience is excellent. Since we released the currently known topic-based onboarding process a few years ago, one major development is that our machine learning information flow capabilities have become much stronger, and it is now the primary driver of new subreddit subscriptions. Therefore, getting users into that information flow faster and letting the information flow and machine learning do the work of recommending quality communities. We are pushing hard in this area, putting some features into testing, and hope to move to the next stage soon because I think this is one of our biggest levers.
Q: Regarding Reddit's presentation in search engine and large language model results, how does this relate to the value of your data licensing agreements? Or do you view these as more independent matters?
A: Our relationships with search engine and large language model companies are multifaceted. Our primary goal is to grow Reddit's community and conversation products, driving our growth flywheel to spin faster. From another direction, we can help these companies provide better search results in certain scenarios. Therefore, our stance in this area is: how to leverage these relationships to grow the core Reddit product. Our relationships remain healthy and collaborative, and we are having interesting conversations about how to help each other achieve this goal because we have learned a lot over the past few years, and now we have greater confidence in the direction of our respective product developments. Of course, our core business is advertising, which is the main driver of Reddit's revenue.
Q: You mentioned that about 50% of traffic comes from direct access and 50% from Google. At a high level, what are the top three drivers for users becoming Reddit app users? What determines this conversion? Because obviously, this is key to your profitability and a major determinant of success.
A: These numbers are approximate but fairly close. The way users become Reddit app users is by installing the app and discovering great content. We see many new app users every day, and there are many opportunities we call reinstallation or re-engagement. That's why I keep bringing your and our team's attention back to the first app open experience and ensuring there are no barriers between users and seeing Reddit content because the biggest driver of retention is following subreddits related to your interests. It's not rocket science.
Reddit's scope is very, very broad, and we don't always have a lot of information input, so we have to do this work. Our machine learning has become much better in this area.
Jen previously described such an opportunity: We know users come from specific content sources, whether it's categorized sources like parenting, gaming, TV shows, etc., and we can provide them with a customized information flow based on that. This is how we think about this issue. I think we have enough opportunities every day to try and improve this process, which will make the entire Reddit machine run more efficiently.
Q: Regarding the operating environment for the fourth-quarter holiday shopping season, what have you observed? From a macro perspective, what assumptions are included in your guidance? Regarding profit margins, you have achieved the target set at the time of the IPO, with incremental profit margins hovering around 60%, how should we view potential updated profit margin targets?
A: From a macro perspective, the market feels generally stable to us, but visibility is low. Tariffs are a concern for some of our clients. Efficiency is important, and we are certainly providing efficiency. We are definitely guiding our clients as they navigate a very dynamic environment and consider investments across the entire funnel. The good news is we have a full-funnel solution, so I think we can broadly meet their needs. So I think the third quarter was generally stable.
In terms of profit margins, you're right, a 40% margin was our target, and it was the metric at the time of our IPO, achieving it six quarters later is great. You may notice that the fourth-quarter guidance is even higher than 40%. We think it might be around 50, that's our target. On a day-to-day and near-to-medium-term basis, a few things are important. Obviously, we want higher margins, and they will be higher, but not every quarter. We are truly building a business, and we will invest meaningfully where it makes sense. With a 90% gross margin, if you can achieve growth, you have the ability to do something special. So sometimes we may invest in our business in stages. Currently, we are progressing well, and the business scale continues to expand well. But for a North Star target, 50 is reasonable. In the medium term, we will focus on above 40, that's how we think. Also, keep in mind that our business won't always be like this quarter to quarter. We reserve the right to take strategic actions to grow the business.
Q: The number of advertisers expanded significantly again this quarter, has the self-service platform become an important part of this expansion or when will it become important? Additionally, how do marketers use Reddit for generative optimization or AI optimization, is this a major use case for advertisers?
A: Regarding self-service, we do offer self-service, but it is not yet a major part of our business. We want to have a self-service product, and the end-to-end automation work we are doing will be an important step in this direction to serve more advertisers who want to operate in a self-service manner.
But our focus has always been on advertisers with large budgets who typically want someone to provide service. They belong to our managed client base, including large clients, mid-market clients, and even our managed SMB clients, and we work with them in a hybrid configuration.
Our strategy is to maximize the opportunity in the largest part of the market, which currently lies in the managed service area, and our goal is to optimize the client experience, placing them in the right service channel to maximize their spending capacity on Reddit. We are not fixated on self-service; we are truly focused on finding the right service model for the right advertisers to ensure they succeed on the platform and get what they need. But as we build more automation features, we are interested in self-service.
Regarding LLM optimization, Reddit's information repository is obviously valuable to LLM because it provides fresh, authentic human conversations, which is unique. We know LLM values Reddit's conversations. But when marketers find us, it's because these conversations happen on Reddit, and they are looking for opportunities to interact with customers in the environment where these conversations occur. Because when they are in that environment on Reddit, the engagement they get translates into results that help grow their business. So, I think the key is not the impact on LLM, that is a derivative of our core platform (conversations and communities). The real value marketers get from the Reddit platform itself is turning that engagement into actual business results. It just so happens that this conversation environment is also favored by LLM, but that environment is on Reddit.
Q: How is the user composition evolving? What are the main drivers of ARPU growth? How much does ad load contribute to ARPU growth?
A: User composition remains relatively stable. We focus on helping new users successfully post, for example, by identifying and informing them in advance of potential community rule violations, which tests show effectively improve contributor composition. Reddit offers multiple ways to engage, including users who only vote. Users must log in to vote or comment, so optimizing the login onboarding process and removing barriers to contribution are crucial for enhancing engagement.
Regarding ARPU, our core strategy is to enhance the value of each ad impression, driving more clicks and conversions. In the third quarter, the growth in impressions contributed more to revenue than the growth in eCPM. The growth in impressions mainly came from: 1) Increased user engagement; 2) New ad placements (such as ads in comments); 3) Temporarily adjusted ad load to balance supply and demand. It should be clear that our overall ad load is far below peers, and increasing load is not a core strategy, it is just a temporary control measure, which we adjusted back after using in Q3.
Q: With the rise of new AI content and increased user video consumption, what is Reddit's strategy in this environment? If the focus is on building Answers and integrating publishers, does this mean the content focus will still primarily be text-based?
A: Our overall positioning for Reddit in the AI era is: Reddit is created by humans for humans. We want Reddit to be a place where people can interact with each other about things they are interested in.
Every post on Reddit, whether it's a link, text, image, video, or GIF, is essentially a conversation starter. We have no strict preference for the form of the post itself; we just want more posts and to continuously expand the types of posts Reddit supports, keeping up with the times. Our developer platform is one of the important ways to achieve this goal. Video is the fastest-growing content type on Reddit, and we believe there is still great development potential for video on Reddit, both as a post itself and possibly as a medium for communication in the future.
We are exploring Reddit-specific ways of video, such as the first video AMA conducted by NASA a few weeks ago, where astronauts responded with videos in Reddit comments, which is an interesting way to combine video with modern content forms and place it in a conversational context. We are always thinking about what the "Reddit version" of that content form is.
Text content will not disappear; it remains a good carrier for sparking conversations. With AI, text can be converted to audio for background listening. Video or AI-generated video will not replace text, just as movies have not replaced books. In fact, the content ecosystem will only become larger and larger, and we must ensure that all forms can run well on Reddit.
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