Key Takeaways
- Shares of Reddit climbed 9.3% to reach $158.10 during Wednesday’s trading session, ranking among the S&P 500’s top gainers
- A Baird analyst indicated that investors have already accounted for potential weakness in the upcoming Google data licensing renewal
- Reddit’s data licensing agreement with Google, generating approximately $130 million annually, is scheduled to expire in early 2025
- The company delivered impressive Q2 results with earnings per share of $1.25 compared to expectations of $0.95, while revenue surged 61% annually to $804.91 million
- Wall Street maintains a consensus “Moderate Buy” recommendation with an average target price of $221.10
Shares of Reddit (RDDT) soared 9.3% to close at $158.10 on Wednesday, securing its position as the second-best performer within the S&P 500 index.
The rally followed comments from Baird analyst Colin Sebastian, who noted that Wall Street has already factored in the possibility of a disappointing or stagnant renewal of the company’s data licensing agreement with Google. Essentially, if the renewed contract comes in weaker than the current terms, investors shouldn’t expect a significant selloff.
The existing agreement, which generates roughly $130 million in yearly revenue for Reddit, is set to lapse in early 2025. Discussions regarding its renewal are currently underway.
According to Sebastian, a less favorable renewal is unlikely to damage the stock price significantly, while a stronger-than-anticipated agreement could lift shares by $10 to $20.
A key point of contention in these negotiations involves how Reddit’s content appears and is referenced across Google’s ecosystem. AI-powered search platforms including Google and OpenAI prefer keeping users within their own environments to safeguard advertising revenue, creating friction with Reddit’s distribution objectives.
Over the trailing twelve months, Reddit’s advertising business has generated $2.6 billion in revenue.
Strong Quarterly Performance Supports Bullish Thesis
The company’s latest quarterly financial report showed impressive results. Reddit delivered Q2 earnings per share of $1.25, significantly exceeding analyst estimates of $0.95. Revenue reached $804.91 million, representing a 61% increase year-over-year and surpassing the consensus forecast of $731 million.
In the comparable quarter from the previous year, Reddit reported EPS of only $0.45, highlighting the substantial improvement.
The company’s net profit margin registered at 31.35% while return on equity measured 29.02%. Wall Street now projects full-year earnings per share of $5.27.
User Base Expansion Decelerating
While financial metrics remain robust, user acquisition momentum has been tapering off. Global daily active users expanded 17% year-over-year in Q1 and 18% in Q2. By comparison, the same metrics registered 31% and 21% growth during the prior year period.
The deceleration is notable, despite the growth rates remaining in positive territory.
Analyst sentiment varies across the Street. Loop Capital maintains a $260 price objective, Needham targets $300, and B. Riley recently elevated its target to $270. Zacks downgraded the stock from “strong buy” to “hold” in recent weeks.
Among 31 covering analysts, the average recommendation stands at “Moderate Buy” with a mean price target of $221.10.
Corporate insiders have been active sellers recently. During the past three months, insiders have offloaded approximately $33.7 million in shares. Board member Robert Sauerberg disposed of 5,128 shares at $159.92 on August 25th, reducing his holdings by 15.92%.
Technical indicators show Reddit’s 50-day moving average at $170.91, with the 200-day moving average positioned at $158.53. The company carries a market capitalization of $29.57 billion and exhibits a beta coefficient of 2.02.
Get 3 Free Stock Ebooks
Discover top-performing stocks in AI, Crypto, and Technology with expert analysis.
- Top 10 AI Stocks - Leading AI companies
- Top 10 Crypto Stocks - Blockchain leaders
- Top 10 Tech Stocks - Tech giants
