Reddit

Thesis

Written 2026-08-23.

Reddit is the last large place on the internet where the answers are written by people, and that is becoming scarce at exactly the moment it is becoming valuable. When somebody wants a real opinion rather than a generated one, they add "reddit" to the search. That habit is the asset.

The business behind it is now excellent, which is the part the description undersells. Revenue of $805m, up 61% — the eighth consecutive quarter above 60%. Net income of $252.8m at a 31% margin. Adjusted EBITDA margin of 43%. Operating cash flow of $262m, double a year ago, taking the trailing twelve months past $1bn. Advertising revenue grew 64%, with the Reddit Max product adding more than 60% to its advertiser count.

The efficiency is the thing I find most convincing. The company passed $1m of revenue per employee, and ARPU rose 36% to $6.18. Growing at 61% while getting structurally more efficient is rare; usually one is bought with the other. US ARPU is $11.85 against $2.26 for the rest of the world, which is less a weakness than a map of where the next several years of monetisation come from.

It joined the S&P 500 on 18 August 2026, replacing AvalonBay Communities. That is a nice confirmation and steady passive buying rather than a reason to own it, which is roughly how I weighted it at the time.

So the position is a profitable, 60%-growing, structurally improving advertising business, bought in the middle of an argument about AI.

What I am watching

Two things here are different from how I described them, and both belong on the page.

The data licensing line is much smaller than the story around it. Reddit's licensing revenue is about $43m, up 24%, roughly 5% of the total, with OpenAI and Google the two largest buyers. It is high margin and it may compound, but it is growing at less than half the rate of the company and it is a twentieth of the business. Advertising is what is driving Reddit. If I told myself I was buying the AI-data story, I would be paying for the other 95% and describing the 5%. The renewals with Google and OpenAI are also unresolved with no stated timeline.

AI cuts both ways here, and the negative side showed up in Q2 2026. About half of Reddit's traffic arrives from Google, and AI Overviews are eating into that. The CEO wrote that "search referrals were choppy in the quarter" and that visibility into referral traffic "remains low". So the platform that benefits from selling human data is simultaneously exposed to AI absorbing the search result that used to deliver its readers.

US daily active users went backwards — 53.2 million against 53.5 million in Q1 2026, the first sequential decline in the five quarters the company charts. On a business monetising the US at $11.85 a head, that is the wrong number to see falling, and the stock was marked down hard for it.

The dependency is the real structural risk. Half the traffic coming from one company, which is also a licensing counterparty and now a competitor for the same attention, is a lot of exposure to one relationship.

What would make me wrong

• US daily active users declining for consecutive quarters rather than one.
• Advertising growth decelerating sharply as referral traffic falls.
• A licensing renewal lost, or repriced downward, with Google or OpenAI.
• ARPU growth stalling before international monetisation picks up the slack.

Latest movements

• 2026-08-14 — Opened at $175.44.
• 2026-08-17 — Added at $177.60. Position size +30%. The only position averaged up rather than down.