What Makes RDDT The Surge? From AI Content Platform To AI Data Infrastructure!

$Reddit(RDDT)$ This quarter's earnings report validates the effectiveness of the dual-engine "advertising + AI data" model.Short-term stock price already reflects Q2 beat, but Q3 guidance and AI realization potential could drive further valuation upside.True repricing will depend on:

1. Speed of data license commercialization (path from 35M to 1B+);

2. International user monetization breakthrough (now ARPU is only 1/10 of the US).

If these two points continue to realize, the current PS 16x (2025E) in the context of high-speed growth is still attractive, the valuation ceiling is expected to be on par with the AI SaaS leader.

Core performance and market feedback

1. Key metrics exceeded expectations across the board

• Revenue: 499.6M, +78,424.7M YoY, fastest growth rate since 2022.

• Earnings: 89M GAAP net income (1810M net margin); 167M adjusted EBITDA (33.4111M margin (22% cash flow margin).

• EPS: 0.48, significantly higher than expected 0.19, reflecting structural improvement in profitability.

Market reaction, shares surged 18% pre-market after the earnings report, mainly due to the results exceeding expectations across the board and strong Q3 guidance, completely reversing the previous market skepticism about the cyclicality of advertising and the efficiency of user realization.

Investment highlights

Core Operating Indicators: Analysis of three major growth engines

1. Advertising business exploded (91% share) revenue $465M (+84% yoy), driving factors include: 1. Advertiser expansion: the number of active advertisers increased by more than 50% year-on-year, covering large, medium and small enterprises; 2. AI-enabled conversion rate: Dynamic Product Ads pushed up the return on ad spend (ROAS) by 2x, and the click-through rate of ConversationAI-enabled conversion rate: Dynamic Product Ads boost return on ad spend (ROAS) by 2x, and Conversation Add-ons click-through rate is 10%+ higher than standard ads; 3. User ecosystem optimization: DAU reaches 110.4 million (+21% year-on-year), with international DAU growing at a rate of 32% (11% in the U.S.), demonstrating the potential for globalization.

2. AI data licensing is the underrated second curve.Although it only accounts for 7% of total revenue (~$35M), but the strategic value is significant because it is a scarce data asset. Reddit content is recognized as the optimal corpus for AI training, and agreements with OpenAI, $Google (GOOG)$, etc. have laid the foundation for long term revenues (the value of the agreement is $203M in 2024).At the same time, we are also starting to further increase commercialization exploration, testing tiered licensing models (e.g., charging by model size), which may account for 30% of revenue in the future.

3. User behavior and product strategy upgraded: Reddit Answers' weekly active users increased 6x QoQ to 6 million, and the management plans to integrate traditional search and AI answers into its core functions, consolidate search functions, and strengthen its positioning as a "knowledge infrastructure".

   

Earnings guidance and strategy: key to valuation support

Q3 guidance far exceeded expectations.Revenue of $535-545M (+54-56% YoY, 14% above expectations of $471.5M; Adjusted EBITDA guidance of $185-195M (double YoY).Implied messages from strong guidance include: advertising demand resilience stronger than industry (Bank of America warns of slower ad growth in H2), and accelerated realization of AI data revenue.

Strategic focus has shifted to efficiency and globalization, with resources focused on areas including product experience optimization, search engine construction, and international expansion (especially in Europe and Asia).In addition, the localization path: machine translation support for 23 languages, the French market has verified the success of local marketing, the future through AI-assisted moderator recruitment to reduce operating costs.

In terms of valuation, sellers' divergence converged, optimistic expectations dominated, and bearish logic strengthened.Citi, Morgan Stanley and others raised target price to $200.

Short risks mainly come from valuation bubble thesis (current PS 16x), but mostly digested by earnings growth, Q2 gross margin 90.8% proves business model scalability.

Valuation repricing triggers

• Upside catalysts:

  • New partners added to AI protocols (e.g. Apple, xAI);

  • International ARPU on par with US from 1.32 (now 4.53).

• Downside risks:

  • Search engine traffic dependence (50% by Google), algorithm changes may impact user growth;

  • Cyclical pullback in the advertising industry (if the macroeconomy weakens).