Reddit (RDDT) is expected to announce third quarter results on Tuesday, October 29 after the market close, with a conference call scheduled for 5:00 pm EDT. What to watch for:
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GUIDANCE: Shares of Reddit were up 3% on Tuesday morning ahead of the social-media platform’s third-ever quarterly earnings report as a public company. In July, Reddit reported a Q2 loss per share of (6c) vs. (70c) last year on revenue of $281.2M vs. estimates of $253.58M. Daily Active Uniques increased 51% year-over-year to 91.2 million, while Weekly Active Uniques increased 57% year-over-year to 342.3 million. For Q3, Reddit forecast Q3 revenue of $290M-$310M and adjusted EBITDA of $40M-$60M. The July revenue consensus was $278.69M, but has since ticked higher to $312.83M.
Other publicly traded companies in the social media space include Meta Platforms (META), Pinterest (PINS), and Snap (SNAP).
POSITIVE CHECKS: Ahead of the earnings report, Bernstein said checks on Reddit were positive, with impressive return on ad spend at current cost per mile. Comments on weaker ad agency signal in the second half of the year shared during Q2 earnings has since improved from August, Bernstein adds. Management guided Q3 revenues to $290M-$310M, which the firm believes is conservative when isolating for ramped data licensing deals, it points to a 30%-35% year-over-year ad revenue growth rate. Longer term, the case to own Reddit as a quality, multi-year compounder is much more unclear, with the near-term tactical case likely fully priced in, Bernstein said.
‘APLENTY’ OF MONETIZATION OPPORTUNITIES: In September, B. Riley initiated coverage of Reddit with a Buy rating and $75 price target, saying the company offers “monetization opportunities aplenty” as it offers a differentiated value proposition to users, advertisers, and content licensees through its “unique” platform powering tens of millions of users across 100K+ communities while creating a large and growing repository of curated content. Reddit is in a relatively early phase of monetizing the platform through advertising and data licensing and is positioned for healthy top-line growth and margin gains in the coming years, the firm added.
COMMUNACOPIA: Goldman Sachs kept a Neutral rating and $60 price target on Reddit following the company’s September presentation at the Communacopia & Technology conference. The firm’s takeaway from its discussion with the company’s CEO indicated that user and engagement growth remains strong and that the management sees a sizable runway for revenue growth across core advertising, data licensing and developer platform over the long-term, the analyst told investors in a research note. Reddit is leveraging AI across a number of areas and use cases, and the company is well positioned given its unique corpus of data and content, the firm added.
GOOGLE, OPENAI: Roth MKM said last week that Reddit has current contracts with Google (GOOGL) and OpenAI for use of the platform’s data in training AI models, with Google partnership providing $60M in annual recurring revenue and expectation of Open AI contribution of over $40M. The firm added that it would recommend buying Reddit shares on any post-earnings weakness.
Meanwhile, Loop Capital last week raised the firm’s price target on Reddit to $90 from $80 and kept a Buy rating on the shares. The company’s advertising business should benefit from new products such as dynamic product ads as well as its recent deal with major sports leagues including the NFL and new surfaces such as the conversations page, the analyst told investors. Reddit may also strike deals with other large language model companies beyond the already announced Google and Open AI deals, the firm added.