Reddit (NYSE: RDDT) delivered a quarter with little to fault: revenue +61%, profit more than doubled, and a 91.3% gross margin.
And yet one line in the breakdown contradicts the story the stock trades on.
What Was Reported
| Metric | Q2 2026 | Year ago | Change |
|---|---|---|---|
| Revenue | $805 million | $500 million | +61% |
| United States | $638 million | $409 million | +56% |
| International | $167 million | $91 million | +84% |
| GAAP gross margin | 91.3% | 90.8% | - |
| Net income | $253 million | $89 million | +183% |
| Net margin | 31.4% | 17.9% | - |
| Diluted EPS | $1.25 | $0.45 | +178% |
| Adjusted EBITDA | $343 million | $167 million | +106% |
| Adjusted EBITDA margin | 42.6% | 33.4% | - |
| Free cash flow | $261 million | $111 million | +135% |
| Cash and marketable securities | $2,786 million | - | - |
Consensus stood at $0.99. The result: $1.25. And daily active uniques: 130 million, up 18%.
And for next quarter: revenue of $860-870 million and adjusted EBITDA of $385-395 million.
And the Breakdown That Contradicts the Narrative
Reddit trades, in part, on one story: it sits on the largest corpus of human text in the world, and AI models need it. Its licensing agreements with AI companies are the thesis.
And here is what the report shows:
| Revenue line | Amount | Change | Share of revenue |
|---|---|---|---|
| Advertising | $762 million | +64% | ~95% |
| Other revenue | $43 million | +24% | ~5% |
And data licensing sits inside 'other revenue'
Reddit reports two lines only: advertising, and other. AI data-licensing agreements sit in the second.
And the second line grows 24%, while advertising grows 64%.
Meaning: the story justifying the multiple is the slowest line in the company, and it represents about 5% of revenue. What is actually doing the work is the advertising business - good, profitable and fast-growing - but it is an advertising business, not a data gold mine.
And this is not an unusual quarter. In the first quarter of 2026 that same line grew 15% while total revenue grew 69%. The gap has held for two consecutive quarters - it narrowed somewhat (from 15% to 24%), but it remains vast.
A caveat that must be stated: Reddit does not publish a separate breakdown for data licensing within "other revenue", so this number alone cannot tell you how much of the $43 million is licensing and how much comes from other sources. What can be said: the line that contains it is the smallest and slowest.
What Does Work, and Works Very Well
And this deserves saying with equal sharpness: Reddit's advertising business is one of the best in the market.
A 91.3% gross margin is a software-company level, not a media one. An adjusted EBITDA margin of 42.6%, up from 33.4% a year ago - meaning the company earns more on every revenue dollar. And free cash flow of $261 million on $805 million of revenue.
And international grew 84% - faster than the U.S., from a small base. That is the next engine.
Why advertising on Reddit is worth more than on an ordinary social network
A Reddit user arrives with declared intent. They are in a community of photographers, of runners, of owners of a particular car - and the ad can be relevant without knowing anything personal about them.
And that is a structural advantage growing precisely now, as regulation on user tracking tightens and platforms that relied on personal data lose precision. Reddit does not need to track - it needs to know which subreddit you are in.
The 91.3% gross margin is exactly that: there is no content cost, because the users write it.
The Bull Thesis
Whoever reads it positively will point to a rare combination: revenue +61%, net income +183%, a 91.3% gross margin and an EBITDA margin that jumped nine points. A company growing revenue and margin simultaneously.
Beyond that: international +84% from a small base, users +18%, and guidance implying continued strong growth. And Reddit's advertising enjoys a regulatory tailwind - it does not rely on personal tracking.
The Bear Thesis
Whoever reads it critically will note first that the thesis justifying the multiple is not the one driving the numbers. Data licensing sits in a $43 million line growing 24%
- about 5% of revenue.
Second, dependence on Google. A significant share of Reddit's traffic comes from search, and a single algorithm change can move the user curve. That is a risk outside the company's control.
Third, the stock is down about 23% year-to-date even before this report - meaning the market is already pricing some doubt, and the question is whether it is about growth or about the story.
And fourth, advertising is cyclical by nature. Ad budgets are the first to be cut in a downturn.
The debate in one line
The bulls see revenue +61%, profit more than doubled, a 91.3% gross margin, an EBITDA margin up nine points, and international growing 84%. The bears see a company whose central thesis - AI data licensing - sits in a line worth 5% of revenue growing 24%, dependence on Google traffic, and a cyclical advertising business. Both sides are reading the same report.
My Angle
A personal opinion of Ilan Abramov - not advice, not a recommendation
What catches me in this report is the gap between what drives the stock and what drives the business.
Over the past two years Reddit has become "the AI data stock" - the idea that it sits on the largest corpus of human text in the world and that anyone training a model has to pay it. That idea is correct and it is persuasive.
But the numbers say something else. The line where data licensing sits grew 24%, while advertising grew 64%. What is doing the work is the advertising business - and it is an excellent one, with a 91% gross margin and a 42.6% EBITDA margin, but it is not the story being sold.
And why does that matter? Because if growth comes from advertising, Reddit is priced against advertising companies - and those are cyclical. If growth came from licensing, that would be recurring revenue with no marginal cost, and that is an entirely different multiple.
And the fairness I hold for the other side: Reddit does not publish a separate licensing breakdown, so I cannot know how much of the $43 million is really data. It is possible that large agreements are signed and recognized over several years, so the accounting lags the economic value. That is a reasonable argument - and it is exactly what the company needs to start disclosing so it can be checked.
And what I will watch: the growth rate of "other revenue". 15% in the first quarter, 24% now. If it keeps accelerating toward the advertising rate, the thesis is validated. If it stays a 5% line growing in the twenties while advertising grows in the sixties, then Reddit is an excellent advertising company with an AI story - and those are two different things.
Summary
Reddit reported a strong quarter on nearly every measure: revenue of $805 million (+61%), net income of $253 million (+183%) and diluted EPS of $1.25 against a $0.99 consensus. Adjusted EBITDA of $343 million (+106%) at a 42.6% margin, a gross margin of 91.3%, and free cash flow of $261 million. Daily users rose 18% to 130 million, and international jumped 84%.
And the finding that contradicts the narrative: advertising grew 64% to $762 million, while "other revenue" - the line where AI data licensing sits - grew just 24% to $43 million, about 5% of revenue.
The question for the investor is not whether Reddit is a good business - the numbers are unambiguous. The question is whether it is priced as an excellent advertising company or as a data company, and which of the two the actual numbers describe.
Sources: Reddit's official results release for the second quarter of 2026 (July 30, 2026), as filed with the U.S. Securities and Exchange Commission on Form 8-K, including revenue and its split between advertising and other, the geographic breakdown, gross margin, net and diluted earnings, adjusted EBITDA, free cash flow, user figures and third-quarter guidance; first-quarter 2026 figures from that quarter's results release. Reddit does not publish a separate breakdown of data-licensing revenue within "other revenue". Data accurate as of the time of writing. The chart is shown in real time via TradingView. Nothing herein constitutes a forecast, recommendation or advice - see the full disclaimer at the bottom of the page.