Reddit, Inc. Q3 FY2026 earnings call

Strategic Direction and Platform Evolution:

• Reddit is transitioning to a 'logged-in only' experience to improve personalization, ad targeting, data protection against scraping, and regulatory compliance.
• The shift aims to convert Reddit from a search-referral destination into a direct daily habit for users.
• Management emphasized that while reach may decrease, engagement and monetization efficiency will increase, as over 80% of revenue comes from logged-in/app users.

Product and User Engagement:

• New user retention (week-one return) improved double-digits quarter-over-quarter and over 50% year-over-year.
• Investments in machine learning feeds and app performance are driving higher engagement for core users.
• Video creation and consumption are growing, with new objectives like 'engaged video views' launched.
• Subreddit contributions continue to grow, adding another billion posts and comments to the corpus this quarter.

Commercial and Ad Stack Progress:

• Click volume grew over 50% year-over-year, and conversion volume more than tripled.
• Scaled revenue grew over 80% year-over-year due to deeper advertiser relationships and new acquisitions.
• Reddit Max adoption more than tripled quarter-over-quarter, with expanded access and asset group features.
• B2B lead generation tools showed a 7% improvement in cost per action compared to other first-party targeting options.
• Third-party research validated higher lifetime value (LTV) for shoppers in CPG, QSR, and retail categories.

Operational Challenges and Mitigation:

• Search referral traffic declined meaningfully, particularly from Google's AI Overviews/AI Mode rollout, which does not drive external traffic.
• To offset this, Reddit increased consumer marketing spend internationally and shifted domestic spend toward app installs and brand campaigns.
• Paid app install campaigns in the U.S. show retention rates comparable to organic users, validating the strategy despite early stage.

Financial Discipline and Capital Allocation:

• Adjusted operating expenses decreased to 47% of revenue, demonstrating operating leverage.
• Headcount grew 12% year-over-year but remains efficient relative to output.
• Stock-based compensation was 15% of revenue; share count dilution is tracked well against the 1-3% annual guide.
• Completed ~$100 million in stock buybacks in Q3, with $660 million remaining on authorization.
• Cash and investments topped $3 billion, providing flexibility for M&A, investment, and buybacks.

Total Revenue: $895 million, representing 53% year-over-year growth. Trailing twelve-month revenue has crossed the $3 billion threshold. Advertising revenue grew 54% year-over-year to $847 million. Gross margins remained strong at 91.5%, with adjusted EBITDA margin at 45%. Net income was $283 million ($1.40 diluted EPS). Free cash flow reached $363 million, up 98% year-over-year.

• Q4 2026 Revenue Guidance: Estimated between $1.0 billion and $1.03 billion, representing 38-42% year-over-year growth (midpoint ~40%).
• Q4 2026 Adjusted EBITDA Guidance: Estimated between $480 million and $510 million, representing 47-56% year-over-year growth.
• Q4 Adjusted EBITDA Margin: Expected to be approximately 49% at the midpoint.
• Long-term Target: Management identified $5 billion in trailing twelve-month revenue as the next internal North Star goal.

• Decline in Search Referral Traffic: Significant drops in traffic from Google, driven by the rollout of AI Overviews and changes in how machine-translated content is ranked, potentially impacting DAU growth.
• Logged-In Transition Risks: Moving to a logged-in-only model involves trade-offs between reach and engagement; conversion rates and boundary definitions (e.g., shared links) are still being tested and may impact top-of-funnel acquisition if not executed perfectly.
• Competitive Landscape: Rapid evolution of AI search and synthetic content poses challenges to maintaining Reddit's unique value proposition as a source of lived experience.
• Content Licensing Negotiations: Ongoing discussions with AI partners (e.g., OpenAI, Google) regarding data licensing carry strategic and economic risks if terms are not favorable or if deals fall through.
• Retention of New Users: While improving, retaining users acquired through paid marketing or web referrals remains critical to offsetting churn and search traffic declines.

Q: Why is Reddit shifting to a logged-in-only experience, and what are the expected impacts on reach vs. engagement?

A: Steve Huffman explained that the transition mirrors industry peers to enhance personalization, improve ad targeting signals, protect the valuable data corpus from scraping, and adapt to global regulations. While this may reduce overall reach, it prioritizes engagement because logged-in and app users generate over 80% of revenue. The company is testing login walls in non-US markets to determine optimal placement and boundaries, such as preserving link sharing functionality.

Q: How should investors view the runway for ARPU growth compared to competitors like Meta?

A: Jen Wong noted significant headroom for ARPU growth given Reddit's high-intent audience and performance-oriented business model. With over 60% of revenue driven by performance outcomes (clicks/conversions), and CPMs rising faster than impressions, management believes the platform's context and raw engagement materials allow for continued monetization expansion. They remain confident in delivering returns that justify higher advertiser spend.

Q: What is the status of content licensing deals with AI partners like OpenAI and Google?

A: Steve Huffman stated that while active discussions are ongoing, any deal must advance Reddit’s long-term strategy and offer fair value exchange. Options range from training access to display usage, and management is open to various structures. However, they are prepared to decline deals that do not align strategically or economically, emphasizing that these negotiations are not binary decisions.

Q: Is Reddit planning to acquire companies to boost user base growth?

A: Steve Huffman clarified that M&A for user acquisition is not currently a priority. Instead, Reddit focuses on organic growth channels: improving new user retention (which is up 50% YoY), reducing re-installs via incognito modes, and converting mobile web search users to the app. Management believes these on-platform opportunities offer larger scale potential than acquisitions at this time.

Q: How does Google's AI Mode impact Reddit's traffic strategy?

A: Steve Huffman attributed the traffic decline primarily to Google’s aggressive rollout of AI Overviews/Modes, which do not drive outbound clicks to third-party sites. He emphasized that demand for Reddit remains strong (it is still a top search term), but Google is no longer acting as a traffic driver. This shift reinforces Reddit’s strategy to become a direct destination rather than relying on search referrals.