In its fiscal 2026 second-quarter earnings call, Reddit (NYSE: RDDT) highlighted share repurchases as a more meaningful capital allocation tool, buying back approximately $235 million in stock, or about 1.5 million shares, at an average price of $157. The company still has roughly $760 million remaining under its current authorization. Reddit prioritizes capital allocation in three key areas: investing in the business, opportunistic mergers and acquisitions, and share buybacks, all while maintaining high profitability levels.
At the end of the quarter, Reddit held $2.8 billion in cash, cash equivalents, and marketable securities, up over $700 million year-over-year and slightly higher sequentially. For the third quarter of fiscal 2026, the company guided for revenue between $860 million and $870 million, representing year-over-year growth of 47% to 49%, with a midpoint of roughly 48%. Adjusted EBITDA is expected to be between $385 million and $395 million, up 63% to 67% year-over-year, implying an adjusted EBITDA margin of 45% at the midpoint, which incorporates current investment plans.
Additionally, Reddit lowered its full-year guidance for stock-based compensation (SBC) as a percentage of revenue from the high teens to the low-to-mid teens, primarily because SBC has been under 13% of revenue year-to-date and has declined by over 1,000 basis points year-over-year in the first half. Third-quarter SBC and related payroll taxes are expected to rise to between $140 million and $155 million, driven by the vesting of older grants issued when the stock price was lower and the re-granting of new awards at a higher stock price. Full-year dilution is expected to land at the low end of the 1% to 3% target range, not accounting for further dilution offset from buybacks or potential M&A.
Key financial metrics for the second quarter included revenue of $805 million, up 61% year-over-year, marking the eighth consecutive quarter of growth above 60%. The adjusted EBITDA margin was 43%, and for the fifth straight quarter, the sum of "revenue growth rate plus adjusted EBITDA margin" exceeded 100%. Gross margin stood at 91.3%, an improvement of 50 basis points year-over-year. Adjusted total costs and expenses were $462 million, up 39% year-over-year, including $70 million in cost of revenue (up 53%) and adjusted operating expenses of $392 million, which represented 49% of revenue (down from 57% a year ago). Net income was $253 million, with basic earnings per share of $1.31 and diluted earnings per share of $1.25 (compared to $0.48 and $0.45 in the prior year). Operating cash flow doubled year-over-year to $262 million, and trailing twelve-month (LTM) operating cash flow surpassed $1 billion for the first time. Fully diluted shares outstanding were 207 million, up 0.3% sequentially and 0.2% on a net year-over-year basis; sequential net dilution was 0.3%, while gross dilution excluding buybacks was 1%. LTM revenue per user exceeded $1 million for the first time, a key milestone set at the time of its IPO.
Reddit noted that the second quarter was the last to separately report logged-in and logged-out user metrics. Starting in the third quarter, the company will no longer break out logged-in/logged-out daily active users (DAU) but will continue to disclose US and international DAU and weekly active users (WAU).
On the factors driving strong advertising revenue in the quarter: Management attributed the performance to consistent business momentum. Advertisers are increasingly recognizing the value of Reddit's environment, where authentic recommendations from real people heavily influence purchase decisions. The company's strategy focuses on making every impression more valuable, and as conversions and clicks grow, advertisers get more results at similar or better prices. Improvements in signals, machine learning, and optimization have boosted competitiveness. High tool adoption rates have lowered the barrier for new advertisers, with advertiser count growing roughly 70% year-over-year. Once onboarded, advertisers experience higher efficiency, leading to retention and budget expansion. The business is also diversifying across 15 verticals, 11 of which grew over 50% year-over-year, with scaled channel revenue from mid-market and SMB clients doubling, and other regions growing over 80%.
Regarding user growth trends and the ability to attract high-quality users: Management reiterated its goal of 1 billion daily active users (DAU) globally and 100 million DAU in the US. Reddit is a destination, with nearly 200 million weekly users in the US. Growth is driven primarily by product initiatives to increase direct daily visits. In the quarter, product-driven DAU growth was offset by a decline in search-driven traffic. Product improvements include a 50% year-over-year improvement in new app user retention, a key metric. Weekly active users surpassed 500 million, with both US and international WAU growing sequentially. Reddit now hosts 26 billion posts and comments, adding 1 billion since the first quarter, with active communities growing significantly. The company is also more effectively converting web users into higher-value app and direct users. While search headwinds are a challenge, particularly late in the quarter, the focus remains on controllable product-driven growth.
On converting weekly active users to daily active users: Improving DAU is about increasing frequency, which is achieved by making Reddit more sticky through feed improvements. Management acknowledged that the company's feed technology lags behind industry leaders, presenting a significant opportunity for improvement. Hundreds of experiments are being run, many of which are scaling, aimed at making incremental gains in retention and quality across new user onboarding, posting, and overall app performance. Converting the large web-based user funnel into mobile app users is another key area of focus, with users who convert showing better retention within the app.
On the strategy for data licensing partnerships: The strategy remains unchanged. Reddit content is in high demand, and its value extends beyond raw training data, encompassing uses like training, post-training for model tone, grounding, and as a search index. These partnerships are not binary; they must be meaningful for Reddit, and the company aims to maximize the value flowing back to the platform. The relationship with Google, for example, predates the formal data licensing agreement and includes historical presence in search results and current inclusion in AI Overviews. Reddit will evaluate each new use case independently to maximize value.
On the user growth confidence despite recent stock decline and search challenges: Management expressed confidence because product work is yielding results. Improvements in new user retention within the app, a difficult metric to move, are a key indicator of progress. The focus is on converting web users to app users, improving onboarding, and streamlining login processes. While external search traffic is volatile, the core business is built on direct users, which the company controls. Work on product-driven direct user growth is showing early signs of progress, but it requires time to reach the long-term milestones.
On the nature of the search headwind late in the quarter: The transcript notes that the specific answer regarding search traffic was omitted, but the topic shifted to feed technology and video presentation. Management discussed improving feed technology, which is key for scheduling subreddit subscriptions and discovery. They also highlighted the challenge of presenting video in the home feed and creating a "listenable Reddit" experience for audio content. In search, the search box is now globally available in the app, with both search users and volume growing. Reddit is becoming the best platform for searching its own content, and the company is exploring advertising opportunities in search, particularly through rich media modules and shopping listing ads, which align well with the search context.
On the specific drivers of the 50% improvement in new app user retention: The improvement stems from several factors. The largest contributor is the conversion of core web users to app users, where they become even higher-quality users. Second, within the app, onboarding has been significantly improved to better connect users with their community. Finally, a range of backend improvements, such as login, account recovery, and maintaining login state after reinstallation, have collectively pushed the metric higher. Management believes there is still substantial room for improvement in absolute retention levels and sees this as a healthy structural shift.
On the specific areas for feed model improvement: The current feed model is significantly smaller than industry-leading models, updates on a daily rather than hourly or minute basis, and incorporates only about 10% of available user behavior signals. The candidate set for recommended posts is currently limited to the past week, missing a vast corpus of timeless content like advice or reviews. Reddit sees opportunities for order-of-magnitude improvements in candidate set selection, model size, model speed, and user signals, many of which are expected to be implemented over the next year.
On the progress of the SMB business: SMB is a strong growth area, but there are still thousands of global SMBs not on the platform. The partnership with Shopify enables automatic product catalog sync and integration, and the company plans to ramp up co-marketing efforts to accelerate acquisition. The current SMB onboarding experience on Reddit's Max product is not yet optimal, and the company is working on a more tailored entry point to reduce friction. SMBs also benefit from broader efficiency improvements across all ad objectives.
On the creator ecosystem and path to 1 billion users: Reddit's creator ecosystem differs from other platforms, which serve the top 1% of creators. Reddit is for everyone else, providing a platform for everyone to share questions, advice, or interesting content. Progress in the quarter includes rising per-capita posting and commenting rates and active community growth. Key improvements include new post and comment composers, better community guidance, and AI-assisted moderation to increase posting success rates for new users, who often have their posts removed due to account age. The video and comments feature has already contributed over 10% of video posts.
On the rationale for not increasing marketing spend given attractive ROI: Marketing is a crucial part of the strategy, but the key unlock is better user retention. The 50% improvement in new user retention is a positive sign, but the company is still below industry peers. Reddit balances performance marketing with brand campaigns, and as retention improves, it will enable more aggressive user acquisition spending. The strong gross margin model and high ARPU mean each incremental user is highly valuable, making further retention improvements the primary catalyst for accelerating UA spend.
On the biggest operating leverage opportunities: Over the past few years, incremental margins have been in the high-50% to low-60% range. The company does not manage to a specific incremental margin target but instead evaluates each investment on its individual ROI. The vast majority of incremental revenue flows through to gross profit (95-99%). Investments are made where they make sense, such as in the ad tech stack and sales team, which have driven strong results. The long-term margin target remains 50%, and most of this leverage is expected to come from the incremental revenue stream, with no specific large cost area targeted for cuts.
On the value of high-quality users versus search traffic: Management confirmed that direct and app users are worth several times more than users from search or viral traffic, as the business is built on direct, repeat users. The strength and stability of ad revenue growth, despite search volatility, demonstrate this focus. The company's progress in conversion and retention is driving this base of high-value users, regardless of broader search ecosystem changes.