Reddit Projects Strong Q3 Revenue as AI Ad Tools Attract Marketers

Reddit Inc. projected third-quarter revenue that surpassed Wall Street expectations, signaling that its investment in AI-powered advertising tools is successfully attracting a growing number of marketers. The strong forecast follows a second quarter where the company also handily beat revenue estimates, underscoring solid momentum for its commercial business.

Upbeat Forecast Signals Ad Momentum

The company announced on Thursday it expects third-quarter revenue to be between $860 million and $870 million. This outlook is significantly above the average analyst estimate of $829.1 million compiled by LSEG.

The optimistic forecast is supported by a robust second-quarter performance, where revenue surged 61% year-over-year to $805 million, beating estimates of $730.4 million. Reddit also anticipates quarterly adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $385 million to $395 million, ahead of the consensus estimate of $369 million.

Advertiser Growth and Market Position

Reddit's strategy to enhance its advertising platform appears to be paying off. According to COO Jen Wong, the company's advertiser base grew 70% year-over-year in the second quarter. Wong told Reuters that growth was particularly strong among mid-market, small- to medium-sized businesses, and international advertisers.

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The company's ad tools are designed to improve campaign performance by generating Reddit-specific ad copy, enabling interest-based targeting within subreddit communities, and tracking user actions. These improvements are helping Reddit carve out a niche in a competitive market that includes larger rivals like Meta.

User Metrics Show Mixed Picture

While the financial results were strong, user growth presented a more complex view. Global daily active unique visitors (DAUq) rose 18% from a year earlier to 130.3 million. However, growth in its U.S. DAUq slowed sequentially in the second quarter.

In a letter to shareholders, CEO Steve Huffman said that "search referrals were choppy in the quarter." COO Jen Wong attributed the slowdown to "SEO headwinds" caused by changes in search engine algorithms. Wong noted, however, that the company is focused on converting these lower-engagement visitors from search engines into loyal app users through product improvements.