The Positives
+ Resilient AI-led ad performance. RDDT’s ad revenue rose 74% YoY to US$663mn (1Q25:
+61%), driven by strong growth in both impressions and pricing. Performance advertising,
which accounts for over 60% of total ad revenue, continued to grow at triple-digit rates
following the integration of machine learning-driven signal optimisation and enhanced ad
formats. Growth was further underpinned by strength across key verticals led by retail,
alongside a more than 75% YoY increase in active advertisers (4Q25: +75%). The beta launch
of Reddit Max has shown early traction, with advertisers seeing a 17% reduction in cost-per
action and a 25% increase in conversion outcomes on average. ARPU increased 44% YoY
(1Q25: +23%) to US$5.23, as both U.S. and international markets recorded over 50% growth,
highlighting stronger monetisation momentum relative to peers such as PINS (+6% YoY) and
META (+26% YoY). Looking ahead, we maintained our FY26e forecast and expect ad revenue
growth of 66% YoY, driven by broader adoption of Max Campaigns and continued
improvements in return on ad spend (ROAS) with Dynamic Product Ads (DPA).
+ Data licensing potentials. RDDT’s “other revenue” reported US$39mn in 1Q26, up 15% YoY,
driven by data licensing agreements with GOOGL and OpenAI (1Q25: US$34mn). This high
margin segment leverages RDDT’s structured data for LLM training, and we expect it to
gradually become a steady contributor to growth. We see OpenAI and Anthropic’s upcoming
IPOs and intensifying LLM competition as a tailwind, likely boosting demand for users’ data
from players with limited first-party access.
+ Strong financial position. RDDT’s 1Q26 results highlight continued operating efficiency, with
adjusted EBITDA margin expanding by ~11 ppt to 40%. The company’s high-margin profile and
robust advertising demand drove significant bottom-line expansion in 1Q26. Revenue of
US$663mn yielded a net income of US$204mn, representing a 31% net profit margin. This
reflects a substantial YoY improvement compared to 1Q25, which saw a net income of
US$26.6mn on a 6.7% margin. Free cash flow rose ~146% YoY to a record US$311mn (1Q25:
US$126mn), underscoring strong earnings power alongside minimal CAPEX of US$1mn (0.2% of
revenue). Share repurchases continued but remained modest in 1Q26 due to disciplined equity
spend, with ~US$995mn still available under the US$1bn buyback authorisation announced in
February 2026.
The Negative
NIL
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Serena is a Research Analyst covering the U.S. Technology sector at PSR. Prior to joining the firm, she worked as an Equity Dealer and held various roles across the insurance and banking industries. Driven by a strong interest in economic trends, Serena holds a Bachelor's degree in Economics and a Postgraduate Diploma in Applied Finance from the University of Adelaide.
