Reddit Bulls are overestimating Reddit's potential, especially ARPU growth. Growth engines driving ARPU is slowing. Look closer.

I have posted my thoughts on Reddit's valuation. Many users have disagreed about my ARPU estimation and demanding facts and not opinions. Here is the fact. Why is Reddit's ARPU growing so fast? * Huge companies are main drivers. RDDT 10k stated: "·...our top ten largest advertisers accounting for approximately 21% and 25% of our revenue for the years ended December 31, 2025 and 2024, respectively". That's almost 40 million average spend per top 10 advertiser. That's Fortune 500 level of ad spending. * Takeaway: RDDT ARPU is growing fast DESPITE weak ad conversion rate because big companies can afford to ignore ROI on ad spent. These customers are limited compared to the millions of small businesses who care about conversion rate. Without personally identifiable information, Reddit will find it hard to improve conversion rate for small businesses. * Ad impression growth is main driver. From 2023 to 2025, ad impression has always been the main driver of ARPU growth. Think of ad impression as the utilisation of ad capacity aka ad space. There is a limit to how much ads Reddit can impress upon users. However, in Q32025 and Q42025, Reddit in its quarterly report states that: "The increase in global ARPU compared to the prior quarter period was due primarily to an increase in advertising revenue driven by an increase in pricing, and to a lesser extent, an increase in impressions delivered.". * Takeaway: This means the last two quarters were driven by price increase. The last time this happened was in Q32024. In first half of 2024, Reddit's revenue growth was languishing. After the price hike in Q32024, revenue spiked and delivered 61.7% growth for 2024, after slowing from 111.8% in 2021 to 37.5% in 2022 to 20.6% in 2023. Why is this not great? Think of ad growth as two engines. First engine, is growth in ad impression, second is CPC or cost per click. Ad impression growth is slowing and Reddit is now relying on higher CPC to grow. But to keep justifying higher CPC, Reddit needs to have good conversion rate, but it does not. So it is exhausting one engine and is using up the other, which has limited fuel, if we are using engine as a metaphor. Yes, this two facts does not mean Reddit is going to saturate ARPU anytime soon. But you must consider Reddit's US DAU growth is now stagnating, that's one very important engine gone, this engine fueled 2024's growth. Interestingly, Reddit hiked its prices in Q32024 right when its DAU growth slowed significantly right after. Second engine, ad impression, this fueled Q12025 and Q22025 growth, as well as previous quarters. But that has switched to price increase to Q32025 and Q42025, which helped sustain the growth. Looking beyond just mere headline growth rates, Reddit's engines of growth is actually slowing and not accelerating or sustaining. Going forward, Reddit has less leeway to eke high double digit growth. I expect Reddit's growth rate to slow over the next few years, especially with stagnating US DAU.