Reddit (RDDT) shares rallied 6.1% on Thursday following the release of third-party audience data indicating that the platform's user base rebounded strongly in August after a sluggish July. The stock closed at $155.34, up from $146.44 the previous day, after trading in a range of $144.80 to $156.95. Trading volume swelled to 5.8 million shares, up from 4.8 million a day earlier, according to Yahoo Finance data.
The rally, which was more pronounced than the 1.5% premarket gain initially suggested, reflects investor relief that July's decline was not the start of a longer-term traffic slowdown. However, the headline 8% monthly audience growth figure, while encouraging, masks underlying challenges that could shape the stock's trajectory in the coming quarters.
Piper Sandler Data Shows Mixed Picture
Piper Sandler's metrics revealed that Reddit's average audience grew 8% from July to August, reversing a 2% decline the prior month and marking the fastest sequential growth rate of the year. Year-over-year audience growth accelerated to 18.0%, up from 12.8% in July. Yet the composition of that growth was uneven: feed users increased by 79 million, while conversation users declined by 1 million. International users surged 29.3% year-over-year, up from 19% in July, but U.S. user growth slowed to just 5.2%.
Moreover, Piper Sandler cautioned that changes to its ads-manager measurement model will reset reported audience levels by roughly 20%, creating a data break that investors will need to account for when comparing future readings. This is third-party data, not Reddit's own Daily Active Uniques (DAUq), and definitions and sampling differ, so one strong month does not automatically translate into higher revenue estimates. It does, however, ease immediate concerns that July's dip signaled a new negative trend.
The Real Test: U.S. Logged-In Growth
Reddit's own second-quarter results highlight why the distinction between logged-in and logged-out users is critical. Global DAUq rose 18% year-over-year to 130.3 million, but U.S. DAUq increased only 6% to 53.2 million. Within the U.S., logged-in DAUq was nearly flat at 23.1 million, up just 1%, while logged-out DAUq grew 10% to 30.1 million. Logged-in users are a stronger indicator of habit and personalization, and management's product initiatives—such as improving feeds and using AI to connect users with relevant conversations—are aimed squarely at boosting this metric.
The bullish case is that Reddit has not needed equal user and revenue growth. In Q2, U.S. average revenue per unique (ARPU) jumped 51% to $11.85, while international ARPU rose 31% to $2.26. Total revenue grew 61% to $805 million, including 64% advertising growth, and free cash flow reached $261 million. This monetization strength provides room for uneven traffic, but it also raises the bar: sustaining the current valuation becomes easier if domestic user growth reaccelerates rather than relying solely on pricing and ad efficiency.
Valuation and Outlook
At Thursday's close, Reddit's implied equity value stands at roughly $32.2 billion, based on 207 million fully diluted shares. That is approximately 10 times annualized Q2 revenue, excluding $2.79 billion in cash and marketable securities. The stock remains about 45% below its 52-week high of $282.95, suggesting the market has already priced in significant deceleration.
Management's Q3 guidance calls for revenue of $860 million to $870 million and adjusted EBITDA of $385 million to $395 million. At the midpoints, that implies about 48% revenue growth year-over-year and an adjusted EBITDA margin near 45%—a slight deceleration from Q2 but with improved profitability. Reddit also repurchased 1.5 million shares in Q2 at an average price of $157.57, slightly above Thursday's close, spending $235 million. However, fully diluted shares were still up 0.2% year-over-year, so investors should watch whether buybacks continue to offset employee equity issuance without depleting cash reserves.
What Could Break the Rally
The bearish argument is not that August traffic was weak, but that an external audience series with a coming methodology reset may have limited predictive value for Reddit's own DAUq. International growth is robust, yet international ARPU remains less than one-fifth of the U.S. figure. Feed growth is positive, but the decline in conversation users complicates the engagement narrative.
The next proof point will come with Reddit's Q3 earnings report. Investors need to see that traffic acceleration persisted through September, that U.S. DAUq stopped decelerating, and that logged-in users improved without sacrificing the exceptional ARPU trend. Thursday's rally priced in a better answer—it did not deliver the answer itself.
