How Does Reddit Make Money? What It Means for Reddit (RDDT) Stock in 2026
Reddit makes money mainly from advertising, which brings around 95% of its revenue. The other 5% comes from data licensing for AI, its subscription plan and its in-platform economy.
Fast Facts
- Core Product: an online community platform where people discuss almost any topic, monetized mainly with ads
- Growth Metrics: Q2 2026 revenue of $805 million, up 61% year over year; full-year 2025 revenue of $2.2 billion and net income of $530 million
- Core Risk: a big portion of Reddit's traffic comes through Google search
- Valuation: free cash flow yield of 3.5%, which suggests much of the growth is already priced in
There is one ad platform that captures Google's search intent and also Meta's browsing intent. That platform is Reddit. People come to Reddit with a question before they buy something, and they stay to scroll the feed.
Reddit (RDDT) stock is down 35% this year, mainly because its US user growth has stalled, which, combined with the high valuation, changed the sentiment.
I think the market is looking at the wrong number, and to see why, you need to understand how Reddit makes money.
How Does Reddit Make Money?
Reddit's business has two segments: advertising, which brings around 95% of the revenue, and the "other" segment, which brings around 5%.
Other revenue includes data licensing for training AI and also Reddit's subscription plan and in-platform economy. Users can buy Gold on Reddit, and they can spend it on stickers to award valuable posts and comments. There's been a lot of noise about the data licensing deal, but it brings a tiny percentage of Reddit's revenue.
How Does Reddit Make Money From Ads?
That brings us to the more important segment - advertising. In order to understand the business, we need to know the difference between brand awareness and performance marketing.
Brand awareness means your strategy is to target a broad audience, maybe through influencers or billboards. The goal is for many people to recognize the brand, so when they are ready to buy the product, they will recognize and buy your product. Examples are Nike's "Just Do It" campaigns and collaborations with athletes like Michael Jordan or Cristiano Ronaldo. The issue with brand awareness is that it's extremely hard to measure whether your campaigns are working or not.
Performance marketing(also called direct response advertising) is a results-driven approach, where users see a specific product or service, click on it, and directly act on the advertiser's website. They may buy a product or register on the website. The main difference here is that an advertising platform like Meta or Reddit can directly take credit for the purchase through the so-called pixel. And because it is measurable, businesses can scale their advertising budgets and spend more money on the platform.
Reddit started testing banners on the website early, but it was in 2018 when they started shifting towards performance marketing, with cost per click introduced in 2019.
So Reddit is a relatively new platform for performance marketing advertisers, and considering that, it takes time to scale.
There are two important groups that drive the revenue higher: the number of users on the platform and also the number of advertisers.
Reddit already had millions of users, but since it was new to performance marketing, the ad targeting was bad. Meaning, Reddit was unable to match the ad to the right person who wants to buy. Compare it to Google and Meta. With Google search, the intent of the keyword is clear, while Meta knows everything about its users, and it's easy to serve relevant ads to them. With Reddit, more than half of users are logged out, meaning Reddit has no data to analyze for them except the post they are reading or the subreddit they are browsing.
Also, since there weren't many advertisers on the platform, ads were cheap and didn't bring much revenue. The CPC model works with auctions for each ad, where 2 or more advertisers are bidding for the placement. Obviously, if more advertisers are bidding for the same placement, it brings more money to Reddit. But advertisers would only stay if the ad targeting is good enough and they make a profit from it.
How Reddit Targets Ads to Google Search Visitors
Earlier I mentioned logged-out users are a weakness, but most of them come from Google search, and that helps Reddit target them. People trust real human answers when they research a product, and Reddit CEO Steve Huffman said that around 40% of the conversations on Reddit are about what to buy. People don't directly ask "what should I buy?" They ask what to wear, what to watch tonight, or which headphones are the best. Reddit can see which searches bring people to each post. My guess is that this data, together with the title of the post and the subreddit, goes into the AI models that pick which ad to show. Say a user lands on a post called "Is it worth buying the iPhone 18 Pro or Pro Max?" on the subreddit "r/applewhatshouldIbuy". It's easy to guess that this person is about to buy a new phone. This is real buying intent that can be matched to the relevant advertiser.
Is Reddit Growing or Declining?
As I mentioned earlier, the business model depends on the number of users, the number of advertisers, and the targeting algorithm that matches the user intent to the right advertiser.
Reddit's user base is growing. Global daily active users grew 18% year over year, from 110 million in Q2 of 2025 to 130 million last quarter.
It more than doubled in the last 3 years, growing from 60 million in 2023. That growth is mainly in international users, which grew 28% year over year.
US daily active users grew only 5.8% year over year and, more importantly, declined quarter over quarter. But why did the market react so badly to the news? Reddit dropped 22% after the last earnings report.
How Much Does Reddit Make per User?
The reason is visible in average revenue per user. As you can see on the chart, US users bring an average of $11.85, while international users bring an average of $2.26. So declining US daily active users seem to have a devastating effect on future growth, or at least this is what the media sentiment is implying.
Weekly active users in the USA grew to 197 million last quarter. Of course, these are not 197 million different people, as one person may have more than one account, and sessions from different devices are not counted as one.
According to the Pew Research Center, 26% of US adults used Reddit in 2025, and 50% used Instagram. Reddit is not Instagram, and I don't believe it can reach those numbers. But 26% is around 67 million adults in the US, and I believe it is normal to have a plateau and slower growth at this scale. But I don't think this is a problem, as Reddit is in the process of optimizing its targeting and average revenue per user.
For comparison, in 2023, Meta stopped reporting ARPU for North America, but the last number they reported was $68 per user in Q4 of 2023, and if we look at Q2 , it was $53 . Since then, Meta has reported Average Revenue Per Person on its platforms, and this number has grown 61% since Q2 of 2023. Meta operates on a different level and is by far the strongest social media platform for advertising, but its numbers show that Reddit has a lot of room for growth in monetization.
Can Reddit Turn Weekly Users Into Daily Users?
In an interview with Yahoo Finance in June, Reddit CEO Steve Huffman explained how people use Reddit. If you draw a chart of how many days per week users visit, the two biggest groups are people who come every day and people who come once a week, and there's not much in between, it's binary. Many of the once-a-week users come from Google search. His goal is to turn them into daily users. Globally, Reddit has 514 million weekly users but only 130 million daily users, so converting even a small part of them would bring more ad views without needing new people to find the platform.
Reddit's International Growth Opportunity
Now let's look at international users. Reddit is an American platform with English as its primary language, so it has a very low international presence, with only 77 million daily active users. To put that in perspective, Meta has 3.6 billion daily users worldwide.
Reddit is working hard to improve the international numbers, mainly by translating its pages into 35 languages using AI. This way, Google can show translated Reddit pages and drive traffic from the relevant country. So international markets seem to be a huge growth engine for Reddit. If we look at international ARPU, it sits at $2.26 , which is obviously much worse than in the US and always will be, due to the fact that it includes lots of lower-income markets. But this doesn't mean $2.26 is the peak. It grew 30.6% year over year and my guess is that if the algorithm continues improving, the average revenue per user will follow.
Another reason is that since there isn't enough presence in the international markets, there aren't enough subreddits in the different languages. Think about it. If you are a small business in Germany that is selling gardening equipment, you will not be able to advertise as effectively as a similar business in the US. The English r/gardening subreddit has 9 million followers, compared to the German r/garten with 188 thousand. Therefore, the small business owner is more likely to advertise on Meta and not on Reddit. And this is the biggest problem and the biggest potential catalyst for Reddit's growth.
Premium Ad Space vs Local Ad Space
There are two types of ad space on these platforms. One is premium space, where big companies spend their budgets. If we continue with our example, Home Depot may occupy the premium ad space in the gardening subreddit with 9 million followers and also in similar big subreddits with a broad audience. They will compete with other companies on that scale, and the small German garden equipment company has no chance to compete with them for the premium space.
However, big companies would not do specific local targeting, like targeted audience in a small German town. And this is the second type of ad space that matters. Small businesses would be ready to spend a higher amount per click in that small town, as this brings direct revenue for them. When many small businesses compete for the same local audience, the price per click goes up, and Reddit makes more money from ad space that big brands ignore. This is how Meta built its ad business, with millions of small advertisers, and it's the model Reddit is following.
With the language translation I mentioned before, more relevant content will be created in different languages, and this will attract more advertisers to compete for the same ad space.
Reddit is making it easier for small businesses to start advertising on the platform. Its Shopify integration is now available to everyone, so millions of online shops can advertise on Reddit. And Reddit Max, the automated campaign tool, will become the main way small businesses start advertising on Reddit. Active advertisers grew more than seventy percent in one year. Reddit doesn't report the exact number, only the growth percentage, but I think it's a good metric to follow.
Does Reddit Make a Profit?
Revenue grew 61% in Q2, which is exceptional. As we saw earlier, they have more daily active users, and they improved the average revenue per user in both the international and US regions.
Looking at net income, we can see the operating leverage of the company. They became profitable in Q3 of 2024, and since then, profit has been accelerating. Last quarter, it increased 183% year over year, and more importantly, it was even higher than in Q4 of 2025.
The interesting part is that Reddit's operating leverage transforms it into a free cash flow monster, which gives it options for expansion, like acquisitions and share repurchases. Reddit already started buying back shares this year.
Look at the Free Cash flow growth. Last quarter it grew 135%, and in Q1, 145%. The capital-light business model allows Reddit to convert 99% of its operating cash flow into free cash flow. Last quarter, operating cash flow was $261M , while free cash flow was 260 million.
Free cash flow margin grew by 10 percentage points last quarter.
So we see exceptional revenue growth, but the growth in net income and free cash flow is even higher. The more Reddit scales its ad business, the bigger the percentage it keeps on the bottom line. That's the definition of operating leverage.
Why Is Reddit Stock Down? The Biggest Risks
The biggest risk for Reddit stock is that a big portion of the traffic comes through Google search, which exposes it to potential changes in search algorithms and AI Overviews. The way Reddit is tackling it is by working with Google directly and licensing its data for training Google models. They are doing the same with OpenAI. Also, its algorithm is working to convert every logged-out user coming from search into a logged-in user with the app installed.
Still, on the last earnings call, management said search traffic was choppy, and CEO Steve Huffman admitted that AI Overviews hasn't helped Reddit the way classic search results did. The stock dropped 22% the next day. This risk must not be ignored.
Is Reddit Stock a Good Buy?
Looking at valuation, the free cash flow yield is 3.5%, even after the big drop this year. This tells us that much of the growth we see is priced in. I haven't bought Reddit stock yet, but I am certainly watching it. I am looking for a lower price or acceleration of growth.
All charts in this article come from Stockpicker, the platform I'm building with one goal: to become the best stock research website. We recently added company KPIs like daily users, weekly users and revenue per user, and a one-of-a-kind Earnings Hub, and we keep improving every week.
None of this is financial advice. This article is for entertainment purposes only. I am a retail investor, and not a financial advisor.
