Reddit Stock Before Q2 Earnings: Hold or Fold the Stock?

Reddit RDDT is set to release its second-quarter 2025 results on July 31.

The company expects second-quarter 2025 revenues between $410 and $430 million, indicating 46% to 53% year-over-year revenue growth, with a midpoint of 50%. 

The Zacks Consensus Estimate for second-quarter revenues is pegged at $426.49 million, indicating a year-over-year increase of 51.68%. The consensus mark for earnings is pegged at 19 cents per share, unchanged over the past 30 days. 

RDDT’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 250.81%.

Reddit Inc. Price and EPS Surprise

Reddit Inc. price-eps-surprise | Reddit Inc. Quote

Let’s see how things have shaped up for this announcement.

Factors Likely to Have Influenced Q2 Performance

Reddit's second-quarter results are expected to reflect progress in advertising, product development and international expansion. Following first-quarter revenue growth of 61%, this momentum is expected to have continued, supported by broader adoption of ad formats and improvements in monetization.

Performance advertising likely remained a focus area. Increased use of Reddit's conversion APIs and machine learning tools may have contributed to better click-through and conversion outcomes. Additional ad inventory from ads-in-comments placements could have added to the delivery scale.

Beyond advertising improvements, AI-based initiatives, such as Reddit Answers and campaign automation tools, may have enhanced user and advertiser workflows. International markets, including France, Spain and Brazil, have been scaling faster than the broader user base and are likely to continue contributing to revenue growth.

These developments may have supported increased advertiser adoption and improved platform monetization during the to-be-reported period.

However, rising macroeconomic uncertainty may reduce discretionary ad spending, which could weigh on Reddit’s advertising momentum in the second quarter of 2025. In addition, evolving privacy regulations in the European Union may create headwinds for Reddit’s international ad business.

RDDT Benefits From Expanding Partnerships

Reddit's expanding partner ecosystem continues to support growth across AI, advertising and data licensing. Reddit's partnership with Alphabet GOOGL enables access to Reddit's Data API, helping Alphabet enhance content discovery and train AI models. Alphabet benefits from Reddit's timely human-generated content, while Reddit gains recurring licensing revenue and deeper product integration through Alphabet's search and translation services.

Reddit is also investing in AI features that leverage its data partnerships. In December 2024, it introduced Reddit Answers, an AI-powered search tool built using models from Reddit, Google and OpenAI. The feature expanded to users in Australia and the U.K. during the first quarter and is now being integrated into Reddit’s core search experience. 

Reddit extended its content reach to ChatGPT through a partnership with Microsoft’s MSFT OpenAI. Since OpenAI’s models power Microsoft services like Bing and Azure, Reddit’s visibility has expanded across Microsoft’s enterprise and consumer platforms.

In digital advertising, Reddit partnered with Meta Platforms META to support campaign imports through Meta Platforms’ Ads Manager. This integration helps performance advertisers scale campaigns across both platforms. Meta Platform’s collaboration strengthens Reddit’s advertising infrastructure.

Reddit has partnered with Intercontinental Exchange to develop analytics tools using Reddit content for institutional portfolio insights.

RDDT Shares Trading at a Premium

The Value Score of F suggests a stretched valuation for RDDT at the moment.

In terms of forward 12-month P/S, RDDT stock is trading at a premium of 13.02X compared with the Zacks  Internet - Software industry’s 5.82X.

Price/Sales Ratio (Forward 12 Months)

RDDT shares have plunged 7.2% in the year-to-date period, underperforming the Zacks Computer & Technology sector’s appreciation of 11% and the Zacks Internet - Software industry’s increase of 17.5%.

YTD RDDT Stock Price Performance

Here’s Why You Should Hold RDDT Stock

Reddit’s strong portfolio and expanding partner base remain key strengths. However, the company continues to face macroeconomic uncertainty and stiff competition. 

A stretched valuation adds to the caution heading into the second-quarter results. Reddit currently carries a Zacks Rank #3 (Hold), suggesting that investors should wait for a more favorable point to start accumulating the stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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