Reddit Stock Before Q1 Earnings: A Smart Move or Risky Investment?

Reddit RDDT is set to release its first-quarter 2025 results on Thursday.

For the first quarter of 2025, the company expects revenues between $360 million and $370 million, representing 48% to 52% year-over-year revenue growth, with a midpoint of 50%. The Zacks Consensus Estimate for first-quarter revenues is pegged at $372.09 million, indicating a year-over-year increase of 53.15%.

The consensus mark for earnings is pegged at 3 cents per share, which has increased by a penny in the past 30 days. 

RDDT’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 194.08%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Reddit Inc. Stock 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 Q1 Performance

Reddit’s first-quarter performance is expected to have benefited from the continued expansion of its advertising business, higher user engagement, and the company’s growing artificial intelligence (AI) initiatives.

RDDT is seeing strong growth in its advertising business, with improvements across objectives, channels, verticals, and geographies. This momentum is likely to have continued in the first quarter as the platform enhances its ad performance and offerings. Reddit also expects solid growth from its mid-market and SMB customers in the to-be-reported quarter.

Reddit is investing heavily in automation and AI to improve both ad performance and user experience. This includes new features like the AI-powered Reddit Answers tool, which aims to make the platform more useful for information seekers. Additionally, Reddit’s Ads Manager improvements and the use of Machine Learning (ML) optimization are expected to improve the overall ad experience and drive advertiser satisfaction and spending in the to-be-reported quarter.

The company also continued improving its ad product offerings, including AI-driven solutions like the AI Headline Generator. These solutions are likely to have improved ad performance and attract more advertisers in the to-be-reported quarter.

International ad revenue rose 77% year over year in the fourth quarter of 2024, and international growth is expected to remain strong. The U.K. and EMEA regions were key drivers of this growth, and the trend of international expansion is expected to continue benefiting Reddit’s revenues in the next quarter.

RDDT Shares Trading at a Premium

The Value Score of F suggests a stretched valuation for RDDT at the moment, which makes it a risky bet for risk-averse investors.

RDDT stock is trading at a premium with a forward 12-month Price/Sales of 11.26X compared with the Internet - Software industry’s 4.84X.

Price/Sales Ratio (Forward 12 Months)

RDDT shares have plunged 25.7% in the year-to-date period, underperforming the Zacks Computer & Technology sector’s decline of 11.2% and the Zacks Internet - Software industry’s fall of 5.8%.

YTD RDDT Stock Price Performance

The company has also underperformed its peer, Snap SNAP, which is expanding into advertising to compete in the rapidly growing digital ad market. SNAP stock has plunged 18% in the year-to-date period.

RDDT’s Benefits From Expanding Partnerships

Reddit’s expanding partner base also strengthens its competitive prowess. Reddit’s partnership with Alphabet GOOGL boosts content discovery and community engagement by providing access to Reddit’s Data API. This enhances Google’s products and supports AI advancements, benefiting both companies.

Building on this, in December 2024, Reddit announced the testing of “Reddit Answers,” an AI-powered chatbot leveraging models from Reddit, Google, and OpenAI to provide users in the United States with curated summaries, links to discussions, and community recommendations. These are initially available on the web and iOS, with plans for a broader global rollout and language support.

RDDT also explored new sectors by forming content licensing partnerships with Intercontinental Exchange ICE. 

In February 2025, Reddit partnered with Intercontinental Exchange to create data and analytics products for the financial industry, using RDDT’s more than 16 billion posts and comments with Intercontinental Exchange’s data science and machine learning tools to improve portfolio optimization, trading strategies, due diligence and risk management, while maintaining Reddit’s Data API Terms that restrict commercial use without approval.

Reddit Stock: A Risky Investment?

Reddit’s strong portfolio and expanding partner base serve as key strengths. However, the company is suffering from macroeconomic uncertainties and intense competition from Snap, which has expanded its portfolio with its new conversion tracking tool, Snap Pixel. 

The tool helps advertisers measure traffic growth on their websites. With Snap’s expanding ad features and advanced capabilities, both advertisers and users are increasingly attracted to the platform, which is likely to negatively impact Reddit in the next quarter.

Reddit anticipates slightly higher SBC costs in first-quarter 2025, driven by increased employer taxes related to stock price volatility. This could result in higher expenses and reduced profitability in the next quarter.

The evolving European Union privacy regulations could also impact Reddit’s advertising business internationally in the to-be-reported quarter.

RDDT currently carries a Zacks Rank #5 (Strong Sell), which implies that investors should stay away from investing in this stock at present.

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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