Reddit reported Q2 2026 revenue of $805 million on July 30, up 61% year over year, beating the roughly $730 million consensus by a wide margin. Diluted EPS hit $1.25 against $0.45 a year earlier. The stock fell about 10% after hours. That reaction captures everything complicated about owning RDDT: the business keeps compounding, and the market keeps finding a reason to discount it.

The stock now sits near $155, down roughly 45% from its 52-week high of $282.95. The average analyst price target is $213, implying 37% upside from current levels, with 22 of 23 covering analysts recommending a buy. The gap between analyst conviction and stock performance is where the opportunity lives, but investors need to understand what is holding it back.

The Data Licensing Layer

Advertising drove Q2, with ad revenue up 64% to $762 million. But the more interesting business is the one that barely shows up in reported revenue yet: AI data licensing. Reddit’s archive of human-generated, conversation-structured posts is premium training material for large language models. Google and OpenAI are the two largest licensing partners today. The Google deal was reported in 2024 as worth about $60 million annually, and Reddit has indicated it is not sure whether it will renew that partnership. Reddit is actively renegotiating, with some analysts projecting renewal revenue could reach $550 million annually in an optimistic scenario. Broader licensing deal totals could exceed $2 billion by 2027 according to some estimates, and the incremental margins on licensing are exceptional given that the content already exists and delivery through an API is low-cost.

Q3 guidance projects revenue of $860 to $870 million, representing 47% to 49% year-over-year growth, with adjusted EBITDA of $385 to $395 million. Free cash flow more than doubled in Q2 to $261 million. This is a legitimately profitable, high-margin business growing faster than almost any platform at this scale.

The EU Complication

On August 31, the European Commission designated Reddit as a Very Large Online Platform under the Digital Services Act, after Reddit declared it reaches at least 45 million average monthly users in the EU. Reddit now has four months, until January 2027, to comply with expanded obligations covering content moderation, systemic risk assessment, and algorithmic transparency. Breaches can carry fines of up to 6% of global annual revenue. Compliance costs will increase. Management will need to add operational resources in Europe, and the scrutiny creates headline risk on any future moderation controversy. This is a real cost, not a catastrophic one, but it arrived at a moment when investor sentiment was already cautious.

The Risks That Matter

The Google licensing renegotiation is the highest-stakes item on the calendar. Reddit has signaled it is not sure whether it will renew the partnership, particularly as Google’s AI Overviews reduce search-driven referral traffic to the platform. Losing the deal entirely would remove about $60 million in annual high-margin revenue and signal weakness in Reddit’s negotiating position. That risk is real. Insider selling has also been heavy, with insiders selling approximately $69.6 million in stock over the past three months against zero purchases. That is worth noting, though founders and early employees selling appreciated stock is not inherently bearish.

The Bottom Line

Reddit is a 61%-revenue-growth company trading 45% below its 52-week peak because investors are unwilling to pay a premium multiple while the Google licensing renewal hangs unresolved and EU compliance costs are rising. That hesitation is understandable. But the underlying business, with 91%-plus gross margins, $261 million in free cash flow, and a data asset that every major AI company needs to license, is worth more than the current price implies. The next major catalyst is the Google renewal. A favorable outcome, or a new large contract, would close a large portion of the gap between the stock price and what the business actually earns. The licensing story is the only one that matters right now.