Key Takeaways:
Reddit shares fell 21% since its July 30 earnings report, despite Q2 revenue of $805 million that beat consensus by $74 million.
"Search referrals were choppy in the quarter, and traffic was more volatile later in the quarter," CEO Steve Huffman said.
EPS of $1.25 beat the $0.97 consensus, and net income jumped 183% to $253 million. Advertising revenue rose 64% to $762 million, while daily active uniques climbed 18% to 130.3 million.
The selloff leaves the stock down 38.8% year to date, against an 11.7% gain for the Zacks Computer & Technology sector. Investors are watching the Google data-licensing negotiation, which Huffman said has yet to reach a "win-win" outcome.
Reddit guided third-quarter revenue of $860 million to $870 million, above the $854 million consensus, with adjusted earnings of $385 million to $395 million. The company crossed $1 billion in operating cash flow on a trailing 12-month basis for the first time, CFO Drew Vollero said.
Average revenue per user rose 36% to $6.18, and weekly active uniques gained 24% to 514.6 million. Active advertisers increased more than 70%, while Reddit Max advertisers grew more than 60% sequentially and Max revenue rose more than 150% from the first quarter.
The stock rallied nearly 10% on Aug. 3 to close near $154.71, but remains down 13.7% over the past week. Sentiment on Reddit's own forums swung from a bullish 70 on July 30 to bearish readings in the low 30s by Aug. 2, with r/investing leaning bullish and r/wallstreetbets bearish.
Competition in digital advertising is intensifying. Meta Platforms posted 27% advertising revenue growth to $59.36 billion in the second quarter, while Pinterest's AI-powered Performance+ suite now handles about 30% of lower-funnel revenue and Snap has rolled out AI-assisted campaign tools.
The stock trades at 6.95 times forward 12-month sales, above the sector's 6.28 times, and carries a Zacks Value Score of D. Reddit holds a Zacks Rank #3 (Hold).
The selloff signals investors are pricing in slower search-driven growth even as direct app engagement strengthens. The next test is the Google data-licensing deal, which will determine whether the referral drag is a one-quarter blip or a structural headwind.
This article is for informational purposes only and does not constitute investment advice.
