Reddit Q2 2026. The quarter was actually fine, the drop was drastic.
I posted a breakdown of Reddit's **Q1** filing [here](https://www.reddit.com/r/ValueInvesting/comments/1ubr41x/the_case_on_reddit_stock_rddt/) back in June. The new filing came in Friday and the stock dropped 21% in a day. This post will also go through the Q2 filing and check how much of what we discussed in June actually held up.
**TL;DR**
* The quarter itself was strong. Revenue $**805M** (**+61%** YoY), operating margin **28.8%** (up from **27.6%**), EPS **$1.25**. Nothing broke.
* The **21%** drop was due to the guide in the filing. **Q3** guided to about **$865M**, roughly **48%** growth, against **61%** this quarter and **69%** two quarters ago.
* Growth has quietly changed shape. Ad prices **+40%** YoY, ad impressions only **+17%**. One quarter ago it was an even **32/32** split. They're essentially charging more, not showing more.
* US logged-in users: **23.1M** vs **22.9M** a year ago, basically flat AND this metric stops being reported next quarter.
* What I got **wrong** in June: I said user growth would keep decelerating, the way it had from **51%** down to **17%** over eight quarters. This quarter it ticked up.
* What held up: the AI licensing story is still only **\~5%** of revenue, and the contracted backlog actually **shrank**.
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**The Q2 stuff that matters**
Reddit is now growing mainly by raising prices, on a user base that isn't compounding much in its most valuable market (US). Pricing power is the higher-quality half of ad growth, it costs nothing to acquire and drops almost straight through a **91%** gross margin. Unfortunately, it has a ceiling that adding users doesn't, and you can't see advertisers pushing back until they already have.
The other thing is the Google dependency finally showing its face. From the shareholder letter:
>
In Q1 the filing credited search algorithm changes as a **driver** of user growth. In Q2 the same disclosure lists them as something they had to spend to offset. Sales and marketing was up 62%.
**Where I was wrong, and where I wasn't**
**Wrong**: The user growth deceleration, **51**% down to **17**% over eight quarters, and I assumed it would continue decelerating. Q2 came in at **18**%, the first uptick in two years. US users grew **6**% while international grew **28**%.
**Right**: I argued the AI-data licensing everyone owns this stock for was \~**6**% of revenue and shrinking as a share of the mix. It's \~**5**% now. The contracted licensing backlog fell from \~**$121M** to \~**$92M** in a single quarter, and the slice committed to **2027** barely moved.
So at \~**10x** trailing sales, how far do you think Reddit can push advertising prices up while maintaining an okay-ish user growth? I am currently interested in opening a small position in Reddit!
You can find a full analysis of the second quarter of Reddit & the impact of machine translation on Reddit's growth on my free substack:
[https://open.substack.com/pub/secaura/p/the-current-state-of-reddit-rddt](https://open.substack.com/pub/secaura/p/the-current-state-of-reddit-rddt)
