How Reddit was able to significantly beat Q2 estimates & why I think they will beat in Q3

Reddit grew revenue YoY by 78% & guided Q3 revenue up to $545m which I think they will also easily beat.

Q2 came as a surprise to many, largely in part to the CEO staying early Q2 traffic looked weak on the Q1 earnings call. April traffic did end up coming in weak, but sharply rose through May into June. This led to a much greater number of ad impressions than expected & in turn a nice revenue beat. EPS also continued to rise, marking their 4th straight positive EPS quarter (which qualifies them for potential S&P inclusion).

Why Q3 is looking like it will shape up to be another beat:
Organic traffic QTD is up big as of yesterday – worldwide traffic crossed 2B for the first time ever. US traffic crossed 1B for the first time ever as well. These are significant highs on this front, worldwide traffic (per SEMRUSH was in the 1B range this time last year, indicating a 100% increase in traffic YoY in Q3 to date)

I believe the recent traffic surge is due to Cloudflare auto opting sites in to blocking crawlers from accessing sites. How does this help Reddit? Reddit has a data deal with ChatGPT for their data (same with Google) which has now led to them referring reddit at a much higher rate (up 87%) since the crawler block started (7/1) and the site traffic backs it up. Recent studies have shown ChatGPT referrals to Reddit have climbed massively during Q3. ChatGPT is going to prioritize companies who they already pay which is why Reddit is a strong beneficiary of this move.

During June Reddit also upgraded their ad tool suite to integrate LLMs and it’s a recipe for huge earnings upside. It’s not a coincidence that the number of advertisers on this site has exploded in the last quarter. They love the new insights Reddits ad tools are bringing & are also taking note on how much traffic Google & ChatGPT are driving to the site.

Lastly, the new UI is embedding search into the homepage which should make the site / app more sticky. Putting the sites data to better use has been their MO this year and it’s been paying huge dividends.

TLDR
If organic traffic data continues to hold up through September I believe we are looking at strong potential for a massive beat. Users & advertisers have been flocking to Reddit at levels never seen before during Q3.