Reddit set to report Q2 earnings as lock up expiration looms

Reddit (RDDT) is set to release its Q2 earnings on August 6 after the market close. Analysts are expecting an EPS of -$0.32 and revenue of $253.86 million, according to FactSet. This will be closely watched as it is Reddit's second earnings report since its IPO in March.

Piper analysts have highlighted strong fundamentals for Reddit, noting a 11% increase in Monthly Active Users (MAUs) since March and strong pricing. They see potential upside from the OpenAI deal and believe that the street's Q2 ad estimates are conservative. Piper expects Reddit to report around $250 million in Q2 revenue and approximately $11 million in EBITDA, suggesting a positive outlook despite the recent stock volatility.

Lightshed analysts initiated coverage on Reddit with a Buy rating and an $84 price target. They are optimistic about Reddit's growth prospects, especially after positive feedback from ad buyers at the Cannes Lions 2024 event. Lightshed expects Reddit's EBITDA to scale from a negative $69 million in 2023 to nearly $500 million by 2026, with revenues more than doubling during that period. They believe that Reddit has numerous growth levers to pull and should grow well beyond 2026.

Loop Capital recently upgraded Reddit from Hold to Buy, citing the stock's retreat of almost 20% since July 15 and its current trading at 7.8x Loop's 2025 estimated revenue. Loop's $75 price target offers a 23% upside potential, and they recognize that the stock might face selling pressure when the lockup expires on August 9. However, Loop believes the current valuation provides a buffer, especially if Q2 results and Q3 guidance exceed expectations. They see incremental earnings upside from stronger user growth, greater monetization, and more data licensing opportunities.

JMP Securities has named Reddit as their top pick in the internet space for this quarter, maintaining an Outperform rating with an $84 price target. They expect a broadly positive earnings season for digital advertisers and believe Reddit is well-positioned due to its engagement momentum, improved ad tools, and growing data sales business. JMP also notes that TikTok's potential ban could drive advertisers to test other platforms like Reddit, providing additional growth opportunities.

Overall, Reddit's Q2 earnings report will be a significant indicator of the company's ability to capitalize on its growth opportunities and navigate market challenges. Analysts are generally optimistic, with expectations of strong user growth and increasing monetization. The company's guidance for Q3 and beyond will also be critical in assessing its long-term potential and stability in the competitive digital advertising space.

Reddit, in its first earnings report since its IPO on March 21, drew significant attention from analysts and investors. Despite a challenging period in early and mid-April, where the stock fell below its IPO price of $47 after initially soaring 120% above its $34/share IPO price, Reddit managed to regain traction as its Q1 earnings report approached. The company did not disappoint, reporting a substantial net loss of ($575) million largely due to one-time IPO-related charges. However, on an adjusted EBITDA basis, Reddit posted its first profitable Q1, achieving $10.0 million compared to a loss of ($50.2) million in the previous year. The company expects adjusted EBITDA to remain positive, forecasting Q2 adjusted EBITDA between $0 and $15 million.

Despite its maturity as a company founded in 2005, Reddit is experiencing rapid growth. In Q1, revenue surged by 48% to $243 million, surpassing analysts' expectations, while Daily Active Users (DAUs) increased by 37% to 82.7 million. These figures represent an acceleration from Q4, where revenue grew by 24% and DAUs by 27%. Additionally, Reddit's foray into AI and data licensing offers promising new revenue streams beyond its current 98% reliance on advertising. With Google (GOOG) already on board as a data-licensing customer, CEO Steve Huffman expressed optimism about the growing interest in Reddit's data sets, underscoring the potential for significant future revenue from these initiatives.