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So as we know, Reddit reports Q2 earnings after the market closes today. I'm particiularly interested in these earnings among the rest today (AAPL, COIN, etc) because reddit has MOVED massively with each earning play. More up than down.
Last quarter, Reddit reported $663.4 million in revenue, up 69% year over year and roughly 8% above Wall Street’s consensus estimate. Diluted EPS came in at $1.01 compared with $0.13 a year earlier, while adjusted EBITDA more than doubled to $266 million. The stock gained around 14% the following morning.
For anyone watching, the user numbers were also really good. Daily Active Uniques on this site reached 126.8 million, up 17% year over year, while Weekly Active Uniques increased 23% to 493.1 million. International users continued growing much faster than U.S. users, with international up 26% compared with 7% growth in the U.S.
I played reddit last time (option trading) so I wanted to drop my two cents before everyone decides whether to gamble on calls or puts.
For this quarter, Wall Street estimates vary somewhat depending on the source. The consensus appears to be approximately $731 million to $745 million in revenue, representing roughly 46% to 49% year-over-year growth. Analysts are generally expecting around $0.99 in EPS, more than double the $0.45 Reddit earned during the same quarter last year.
Reddit itself guided for revenue of $715 million to $725 million and adjusted EBITDA of $285 million to $295 million. That means Wall Street is already expecting Reddit to outperform the top of its own revenue guidance, so simply landing within the company’s original range may not be enough to impress investors.
The biggest things I’ll be watching are:
- Advertising growth
Advertising generated $625 million last quarter, up 74% year over year, and represented about 94% of Reddit’s total revenue. Reddit said the growth was driven by increases in both ad impressions and pricing. Investors will want to see whether the ad business can continue expanding this quickly as the comparison periods become tougher.
- Daily-user growth
Last quarter’s 17% DAUq growth was solid, but it was slower than Reddit’s revenue growth. Continued growth among logged-in users, U.S. users and international users will be important, especially because international monetization remains a major long-term opportunity.
- Profitability
Reddit is no longer just a high-growth company burning money. Last quarter, it produced a 40.1% adjusted EBITDA margin, a 30.7% net margin and $311 million in free cash flow. Wall Street will likely be looking for another quarter showing that revenue can continue growing much faster than expenses.
- Guidance
This may be even more important than the headline earnings beat. Expectations are already high, so investors will probably want Q3 revenue and adjusted EBITDA guidance that comes in comfortably above existing estimates.
- Reddit’s position in AI and search
Reddit’s archive of human conversations is becoming increasingly valuable to search engines and AI companies. At the same time, AI-generated search answers could reduce the number of people clicking through to Reddit. Management’s comments about data licensing, Google traffic, search visibility and future AI partnerships could have a major effect on how the market values the company.
RDDT is trading around the high $170s heading into the report. From what I see, the average Wall Street price target is approximately $232, with 21 of the 32 analysts tracked by MarketBeat rating the stock Buy or Strong Buy. That implies roughly 30% upside from the current price, although analyst targets obviously do not protect anyone from a bad earnings reaction.
For me, I’m bullish on the underlying business.
* Revenue growth remains exceptional
* Margins are expanding
* They're generating serious cash flow
We also have to keep in mine that Reddit has a unique collection of authentic human conversations at a time when the rest of the internet is being flooded with AI content.
However, I think the setup is riskier than it was during earlier earnings reports. The company is now valued like a premium growth stock, analysts are expecting results above management’s original guidance, and even a decent quarter could disappoint if the guidance is not strong enough.
My prediction is that Reddit beats its original guidance, but the stock’s reaction will come down to whether it clears the much higher unofficial Wall Street bar and provides strong Q3 guidance.
Anyone else playing RDDT earnings today?