Reddit Stock Surges 5.4% As Earnings Optimism Drives Recovery Toward $160 Resistance

Reddit's stock has recently shown an upward momentum, recovering from its lull and moving closer to its resistance level of $160. The company's upcoming earnings report has sparked optimism in the market, with Reddit's share price climbing 5.4% in early trading. Although Reddit has rebounded from its April lows, the stock remains down 20% over the past six months, prompting some concerns following prior rapid growth.

The company has set its revenue guidance for the quarter at between $410 million and $430 million, with adjusted EBITDA estimated to range from $110 million to $130 million. Analysts predict Reddit's revenue will reach $425.97 million, reflecting an impressive annualized sales growth of 51.5%. The expected earnings per share (EPS) of $0.19 mark a significant improvement, contrasting with a loss of $0.06 in the same period last year, and building on the $0.13 profit recorded in the first quarter.

In its first-quarter report, Reddit posted a 61% increase in revenue to $392.4 million, surpassing estimates, with daily active unique visitors rising by 31% to 108.1 million. Analysts have offered various perspectives on Reddit's outlook as it approaches its earnings announcement.

Roth Capital suggests there could be upside potential to the higher end of Reddit's guidance. However, they caution about the company's reliance on Google for traffic and the threat posed by AI-enhanced search tools. Wells Fargo expects financial results to meet or exceed forecasts, emphasizing the importance of strong search referral traffic and the growth of logged-in daily active users for the long-term success of the stock.

Bank of America (BofA) has slightly increased its quarterly estimates, attributing it to heightened advertising demand since April. Despite this, BofA maintains a Neutral rating due to tough revenue comparisons expected later in the year and potential signs of slowing user growth. Raymond James is enthusiastic, elevating their price target from $150 to $175 and maintaining a Strong Buy rating. They anticipate daily users surpassing consensus estimates and expect management to discuss possible benefits from AI search advancements.

Citi highlights new advertising products and rising advertiser interest as contributors to Reddit's growth, while Morgan Stanley has raised its estimates across the internet sector, citing a favorable macroeconomic environment and reduced China tariffs. Furthermore, TD Cowen notes a 20% year-over-year decline in TikTok ad spending, with advertisers reallocating budgets to platforms like Reddit, which could significantly enhance Reddit's advertising revenue this quarter.

As the market awaits Reddit's performance results, the focus will be on whether the company can sustain its growth trajectory or if emerging challenges might curb investor enthusiasm. The outcomes of Reddit's Q2 performance and future outlook will be pivotal in shaping expectations for the stock's trajectory.