Reddit's Q2 Earnings Show Potential, but Analysts Advise Buying on Dips

Reddit's Q2 results were strong, with tremendous potential for growth. Despite a rollercoaster stock price since its IPO in 2024, the company has faced challenges similar to those of major big tech stocks. Investors should consider buying on dips, given Reddit's potential for long-term growth.

Reddit reported strong second-quarter earnings on July 31, 2025, with revenue growth of 78% year-over-year and a significant beat on consensus estimates. The company's second-quarter revenue of $500 million exceeded expectations by 17%, marking the largest beat in Reddit's short history as a public company [1].

Key highlights of Reddit's Q2 performance include:

- Revenue Growth: Reddit's revenue grew by 78% year-over-year, reaching $500 million, which was 17% above consensus estimates.
- Earnings per Share (EPS): EPS came in at 45 cents, outperforming expectations of 19 cents.
- Third-Quarter Guidance: The company provided guidance for third-quarter revenue, projecting a range of $535 million to $545 million, ahead of Wall Street estimates of $473 million.
- User Growth: Global daily active users (DAUs) grew by 21% year-over-year to 110.4 million, surpassing analyst estimates of 109 million.
- Revenue per User: The global average revenue per user (ARPU) was $4.53, topping analyst estimates of $3.90.

Reddit's CEO Steve Huffman highlighted the company's AI-powered Reddit Answers tool, which now has 6 million weekly users, up from 1 million last quarter. Huffman expressed optimism about the platform's role as a community-powered platform for human connection, noting that Reddit's name recognition is a significant advantage in the face of changing search engine dynamics [1].

Despite the strong Q2 performance, Reddit's stock has experienced volatility since its IPO in 2024, similar to other major tech stocks. However, the company's growth potential and strategic initiatives, such as expanding the Reddit Answers tool globally, suggest long-term upside for investors.

In contrast, Spotify reported mixed Q2 results on July 29, with strong subscriber growth but declining advertising revenues. Spotify's ad-supported revenue fell 1% year-over-year to €453 million, while Premium revenue grew 12% year-over-year to €3.74 billion [2]. The company's advertising challenges reflect broader industry transformations as it transitions from traditional direct sales to programmatic and automated buying systems.

Investors should consider Reddit's potential for long-term growth and buy on dips, given the company's strong Q2 performance and strategic initiatives. The market volatility experienced by Reddit and other big tech stocks presents an opportunity for investors to capitalize on the company's growth potential.

References:
[1] https://www.cnbc.com/2025/07/31/reddit-rddt-q2-2025.html
[2] https://ppc.land/spotify-advertising-faces-challenge-as-q2-revenue-drops-1-year-over-year/