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Imagine a company that reports eight straight quarters of 60% revenue growth, beats its earnings-per-share (EPS) estimates by 30%, and raises its next quarter guidance above Wall Street estimates. You might expect the stock to soar 20% following that release, right?

Well, that’s exactly what Reddit Inc. (NYSE: RDDT) reported to the market last week, and the stock didn’t gain 20%; it dropped20% the following morning. The EPS and revenue figures masked a concerning decline in U.S. metrics, prompting a swift re-rating from both analysts and investors. Can Reddit stem this user deterioration without losing its monetization success?

Headline Numbers Hide User Growth Slowdown

Reddit reported its Q2 2026 results on July 30 and beat EPS and revenue expectations in smashing fashion. Revenue grew 61% year-over-year (YOY) to a record $805 million, surpassing analysts’ consensus by nearly 10%. EPS of $1.25 also beat estimates by over 30%, and adjusted EBITDA margins reached 43%.

A clean top and bottom line beat, plus management forecasts another record quarter in Q3 with top-end revenue guidance of $870 million and 45% adjusted EBITDA margins.

The numbers under the hood also looked impressive. Advertising revenue jumped 64% to $762 million, and the number of global daily active unique users (DAUq) grew to 130.3 million, representing YOY growth of 18%. Operating cash flow also surpassed $1 billion on a trailing 12-month basis for the first time ever. And yet the stock dropped 22% following the report, so in the words of Ted Lasso: "Why the decline, Frankenstein?”

The key metric wasn’t global unique users, but U.S. users, which dipped slightly to 53.2 million in Q2 from 53.5 million in Q1. Reddit (for now) splits its user base into two categories: logged-in and logged-out. Logged-in users are the ones who download the app, create accounts, post, get into meme wars, and engage in other activities that can be monetized. Logged-out users come from search traffic (e.g., Google) and typically read an article or a comment chain before moving on. And despite total U.S. users growing from 50.3 million to 53.2 million YOY, the logged-in user base is flat:

• Q2 2025: 22.9M logged in

• Q3 2025: 23.1M logged in

• Q4 2025: 23.0M logged in

• Q1 2026: 23.2M logged in

• Q2 2026: 23.1M logged in

 

Logged-in users growth has plummeted to 1% YOY, which is not the direction a management team with aspirations for 100 million daily U.S. users wants to see the numbers turn. This is also the last quarter management will report the logged-in/logged-out split.

Daily User Monetization Quantifies Bull Case

The decision to retire the differentiated metrics might seem curious considering the slowdown in active user growth. The logged-in vs. logged-out difference is important because logged-in U.S. users are the most easily monetized group on Reddit. And if this group’s growth is stagnating, Reddit will need to increase the revenue it generates per user. The company earned $638 million in U.S. revenue in Q2 2026 from 53.2 million total DAUq, which puts U.S. average revenue per user (ARPU) at $11.85 in the period. And while logged-out users do create ad impressions, the majority of this revenue comes from the logged-in users.

Fortunately for Reddit, the decision to combine user metrics (which should be noted was announced months ago) appears prudent, given the company’s ability to monetize its most active users. Despite flat logged-in user growth, revenue continues to increase, which means Reddit is getting better at extracting dollars from its most dedicated users. Strip out the less valuable logged-out users, and U.S. ARPU rises to $27.62 in Q2 2026, up from $17.85 in Q2 2025, which shows faster revenue growth than the traditional per-user numbers. The monetization factor is the bull case moving forward, the reason management is combining user metrics, and the big caveat on the stock’s 22% drop.

Chart Shows Near-Term Bottom But Long Climb Ahead

Reddit shares were already down on the year before the precipitous post-earnings drop, but had slowly been climbing out of their hole over the last few months. A death cross on the daily chart has scared bulls into hiding, and the latest earnings report coincided with a sharp price rejection at the 200-day moving average. The relative strength index (RSI) has bounced out of oversold territory following the stock’s 10% pop to open the week, but remains stuck in a bearish zone.

Analysts also noted the U.S. user growth slowdown, and the stock received several price target reductions following the Q2 report, including a $142 target from Wells Fargo, which is below the current price. But price target cuts from Oppenheimer, JPMorgan Chase, and Wedbush still have upside built under them, and the Q3 report will reveal whether monetization can keep outpacing engagement. For now, RDDT shares are likely stuck in another trading range, where the valuation has taken a hit, but upside catalysts are required to reignite the rally.

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