Reddit, Inc. (RDDT) operates a unique online platform where communities form around shared interests, allowing users to submit, vote on, and discuss content. This vibrant ecosystem forms the core of its business, which it monetizes primarily through advertising and, increasingly, through licensing its vast content for artificial intelligence (AI) model training.

The Business Model (How They Make Money)

Reddit's main way of making money comes from showing ads to its users. Think of it like a newspaper or a TV channel that sells space to advertisers. Because Reddit has so many different communities focused on specific topics, advertisers can target their messages to people who are genuinely interested in what they're selling. For the full year 2025, advertising revenue made up the vast majority of Reddit's total income, accounting for approximately $2.1 billion, or about 93.64% of its total revenue. In the second quarter of 2026, advertising revenue was $762 million.

Beyond advertising, Reddit also earns money from what it calls "Other revenue." This includes things like premium subscriptions for users and, notably, licensing its huge archive of conversations and data to companies that want to train their AI models. For example, Google and OpenAI are among the major companies that pay Reddit to access this valuable data. In 2025, this "Other revenue" stream brought in about $140 million. In the second quarter of 2026, "Other revenue" was $43 million, representing about 5% of its total revenue.

The Metrics That Matter Most

To understand how well Reddit is doing, we should look at a few key numbers:

1. Revenue: This is the total amount of money Reddit brings in from all its activities before subtracting any costs. For a company like Reddit that is still growing rapidly, watching its revenue tells us if it's successfully attracting more users and advertisers, and if its data licensing deals are expanding. In 2025, Reddit's total revenue was $2.2 billion. For the second quarter of 2026, total revenue reached $805 million, showing a 61% increase compared to the same period last year. This metric is crucial because it shows the overall growth and reach of their platform.

2. Net Income: This figure represents the company's actual profit after all expenses, including taxes, have been paid. While growth is important, a company eventually needs to show it can make a profit. Reddit reported a net income of $530 million in 2025, marking its first net profit since going public. In the second quarter of 2026, net income was $253 million. A growing net income indicates that Reddit is not only expanding its business but also becoming more efficient at managing its costs and turning its revenue into real earnings.

3. Operating Cash Flow: This metric shows the cash a company generates from its regular business operations, like selling ads and licensing data, before accounting for investments or financing activities. For a platform business like Reddit, strong operating cash flow means it's generating plenty of cash from its core activities to fund its growth and operations without relying too much on outside funding. Reddit's operating cash flow for 2025 was $691 million. In the second quarter of 2026, it was $262 million.

4. Sales & Marketing (S&M) Expenses: This tells us how much money Reddit spends to attract new users and, more importantly, new advertisers to its platform. Since advertising is their primary revenue source, how effectively they spend on sales and marketing directly impacts their ability to grow that revenue. If S&M expenses are growing but revenue isn't keeping pace, it could signal a problem. In the second quarter of 2026, Reddit's sales and marketing expenses were $195.897 million.

5. Research & Development (R&D) Expenses: This metric shows how much Reddit is investing in improving its platform, developing new features, and enhancing the user experience. For a technology company, continuous innovation is vital to keep users engaged and attract new ones, which in turn supports advertising and data licensing revenue. In the second quarter of 2026, Reddit's research and development expenses were $231.276 million.

How to Value This Company

The most relevant valuation metric for Reddit, given its growth trajectory and increasing profitability, is Free Cash Flow (FCF) Yield.

Free Cash Flow Yield helps you understand how much cash a company generates compared to its stock price. It's calculated by taking the company's free cash flow (the cash left over after paying for operations and necessary investments) and dividing it by its market value (the total value of all its outstanding shares).

Here's why it's useful for Reddit: Reddit's business model, especially with its data licensing deals, is becoming more cash-generative. Free cash flow is a very "real" measure of a company's financial health because it shows the actual cash available to pay down debt, buy back shares, or issue dividends. For a company that has recently turned profitable and is growing its cash generation, FCF yield helps investors see if they are getting a good amount of cash flow for the price they are paying for the stock. A higher FCF yield generally suggests that the stock might be undervalued, meaning you're getting more cash flow for each dollar you invest. Reddit's free cash flow for 2025 was $684 million. As of September 30, 2026, Reddit's free cash flow yield was 3.5%.