Reddit: revenue per user compounds, and the price assumes growth of 1.7% in perpetuity
We initiate on Reddit with a Buy and a $187 target, 20% above the $156.14 close. Revenue per user is the engine, supplying 68% of FY26E growth, and the price discounts 1.75% terminal growth against 3.0% in our DCF. The risk is the logged-out user base, which we size at $15 a share.
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Key takeaways
- Revenue per user supplies 68% of FY26E growth: quarterly ARPU rose 70% from $3.63 in 1Q25 to $6.18 in 2Q268 (source: Reddit company KPIs (DAUq, WAUq, ARPU) via Signals).
- Logged-out users grew 27% to 77.7m in 2Q26 and are 60% of daily users1 (source: Reddit 2Q26 shareholder letter); we size the risk of their decline at $15 a share.
- Adjusted EBITDA margin rose from 22.9% in FY24 to 38.4% in FY25 and 42.6% in 2Q26; we forecast 48.0% in FY27E.
- Our FY27E revenue of $4,700m is 5.1% above the $4,473m consensus; FY27E GAAP EPS of $8.16 is 14.9% above on reported tax but 4.4% below at 24% tax9 (source: Yahoo Finance analyst estimates and price targets for RDDT).
- We initiate with a Buy and a $187 target, our $170 DCF value rolled forward twelve months; bull $256 and bear $77 weight to $186.
Investment thesis
Revenue per user, not users, drives Reddit's growth: ARPU supplied 67% of revenue growth over the last four quarters8 (source: Reddit company KPIs (DAUq, WAUq, ARPU) via Signals), and we model it rising from $26 to $46 a year by FY30E on targeting, formats and advertiser count, not list-price increases. Logged-out users, 60% of the base, are still growing 27%1 (source: Reddit 2Q26 shareholder letter), so the price discounts a slowdown, not a collapse. With 91% gross margins and almost no capex, we forecast a 48.0% adjusted EBITDA margin in FY27E, and we deduct stock compensation of 12% of revenue in full.
Valuation
The $187 target is our DCF value of $170 today, at a 10.14% WACC and 3.0% terminal growth with stock compensation deducted, rolled forward twelve months at the cost of equity. Cross-checks at the twelve-month date give $194 on EV/sales and $189 on P/E. Scenario values are $256 bull, $187 base and $77 bear, weighted 30/50/20 to $186. The price implies 1.75% terminal growth.
Our estimates
| Line | FY26E | FY27E | FY28E |
|---|---|---|---|
| Revenue | $3,433m | $4,700m | $5,922m |
| Consensus | $3,391m | $4,473m | — |
| Ours vs consensus | +1.2% | +5.1% | — |
| EPS | $5.50 | $8.16 | $10.81 |
| Consensus | $5.39 | $7.10 | — |
| Ours vs consensus | +2.0% | +14.9% | — |
Risks to our view
- US ad-load saturation: a 12% US ARPU shortfall by FY30E, from a finite impression pool, costs $22 a share.
- Logged-out traffic: search referrals were volatile late in 2Q264 (source: Reddit 2Q26 earnings call transcript), and a fall in logged-out users that cuts FY30E revenue by 8% costs $15 a share.
- Margin: four points less adjusted EBITDA margin from FY27E, with stock compensation staying near 12% of revenue, costs $18 a share.
- Rates: a 1pp rise in the cost of equity to 11.14% takes the DCF from $170 to $151, or $19 a share.
- Upside risk: search and Reddit Answers monetisation and international ARPU closing the gap to the US are not in our base case.
Sources
- 1Reddit 2Q26 shareholder letter
- 2Reddit 10-Q for 2Q26
- 3Reddit 10-K for FY2025
- 4Reddit 2Q26 earnings call transcript
- 5Reddit 1Q26 shareholder letter
- 6Reddit 1Q26 earnings call transcript
- 7Reddit 10-Q for 1Q26
- 8Reddit company KPIs (DAUq, WAUq, ARPU) via Signals
- 9Yahoo Finance analyst estimates and price targets for RDDT
- 10Reddit 8-K of 30 July 2026 (2Q26 repurchases)
- 11Precedence Research, US digital advertising market size
- 12Market Data Forecast, US digital advertising market, 2026