TLDR
- Reddit stock rose 9.3% to $158.10 on Wednesday, making it one of the top performers in the S&P 500
- Baird analyst Colin Sebastian said the market has already priced in a weak or flat renewal of Reddit’s Google data deal
- The Google data licensing contract, worth about $130 million in revenue, expires early next year
- Reddit posted strong Q2 earnings with EPS of $1.25 vs $0.95 expected, and revenue up 61% year over year to $804.91 million
- Analysts hold a consensus “Moderate Buy” rating with an average price target of $221.10
Reddit (RDDT) stock jumped 9.3% to $158.10 on Wednesday, landing it as the second best-performing stock in the S&P 500 for the day.
The move came after Baird analyst Colin Sebastian said the market has already “largely priced in” a weak or flat renewal of Reddit’s data licensing deal with Google. In plain terms, even if the deal comes back smaller, the stock likely won’t take a big hit.
That contract, which brings in around $130 million in annual revenue for Reddit, is due to expire early next year. Renewal talks are ongoing.
Sebastian said a weaker renewal won’t necessarily hurt the stock, but a better-than-expected deal could push the price up by $10 to $20 per share.
One sticking point in the negotiations is how Reddit’s content gets displayed and linked within Google’s products. AI search platforms like Google and OpenAI want to keep users on their own platforms to protect ad revenue, which creates tension with Reddit’s content goals.
Reddit’s advertising engine has pulled in $2.6 billion in revenue over the past four quarters.
Earnings Beat Gives Bulls Something to Point To
Reddit’s most recent quarterly results were strong. The company posted EPS of $1.25 for Q2, well above the $0.95 analysts expected. Revenue came in at $804.91 million, up 61% from the same period a year ago and ahead of the $731 million forecast.
During the same quarter last year, Reddit posted EPS of just $0.45, making the year-over-year jump hard to ignore.
Net margin stood at 31.35% and return on equity came in at 29.02%. Analysts now expect Reddit to post full-year EPS of $5.27.
User Growth Slowing Down
Despite the strong financials, user growth has been cooling. Daily active users globally grew 17% year over year in Q1 and 18% in Q2. A year earlier, those same figures were 31% and 21%.
The trend is moving in the wrong direction, even if the numbers are still positive.
On the analyst front, the picture is mixed. Loop Capital has a $260 price target, Needham sits at $300, and B. Riley raised its target to $270. Zacks recently cut its rating from “strong buy” to “hold.”
The consensus across 31 analysts sits at “Moderate Buy” with an average target of $221.10.
Insider selling has picked up. Over the past 90 days, insiders have sold roughly $33.7 million worth of stock. Director Robert Sauerberg sold 5,128 shares at $159.92 on August 25th, cutting his position by 15.92%.
Reddit’s 50-day moving average sits at $170.91, while the 200-day moving average is $158.53. The stock has a market cap of $29.57 billion and a beta of 2.02.
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