Key Takeaways
- Shares of Reddit surged 9.3% to close at $158.10 on Wednesday, ranking among the S&P 500’s top gainers
- Colin Sebastian from Baird noted that investor concerns about a potential weak renewal of the Google data licensing agreement are already reflected in the stock price
- Reddit’s data licensing contract with Google, generating approximately $130 million annually, is scheduled to expire in early 2026
- The social platform delivered impressive Q2 results with earnings per share of $1.25 versus expectations of $0.95, while revenue jumped 61% to $804.91 million
- Wall Street maintains a “Moderate Buy” consensus rating on the stock with a mean price objective of $221.10
Shares of Reddit (RDDT) climbed 9.3% to reach $158.10 during Wednesday’s trading session, securing its position as the S&P 500’s second-strongest performer for the day.
The rally followed commentary from Baird analyst Colin Sebastian, who indicated that investor expectations have already factored in the possibility of a modest or unchanged renewal of the company’s data licensing partnership with Google. This suggests that even if negotiations result in less favorable terms, the stock’s downside may be limited.
The existing agreement, which generates roughly $130 million in yearly revenue for the social media platform, is set to lapse in the first quarter of 2026. Discussions regarding renewal terms are currently underway.
According to Sebastian’s analysis, while a less favorable renewal outcome has minimal downside risk, an agreement exceeding expectations could drive the share price higher by $10 to $20.
A key negotiating challenge involves how Reddit’s user-generated content appears and links within Google’s ecosystem. Artificial intelligence-powered search platforms, including those operated by Google and OpenAI, prefer to retain users within their own environments to safeguard advertising income, creating friction with Reddit’s distribution objectives.
Over the trailing twelve months, Reddit’s advertising business has generated $2.6 billion in total revenue.
Strong Quarterly Performance Supports Bullish Case
The company’s latest quarterly performance exceeded expectations across key metrics. Reddit delivered earnings per share of $1.25 in its second quarter, significantly surpassing the analyst consensus of $0.95. The platform’s revenue reached $804.91 million, representing a 61% increase from the prior-year period and beating forecasts of $731 million.
In the comparable quarter last year, Reddit reported EPS of only $0.45, highlighting substantial profitability improvement.
The company’s net profit margin reached 31.35%, while return on equity measured 29.02%. Wall Street analysts currently project full-year earnings per share of $5.27.
Platform Engagement Expansion Moderating
While financial metrics remain robust, user acquisition momentum has decelerated. Global daily active users expanded 17% year-over-year in the first quarter and 18% in the second quarter. These growth rates compare unfavorably to the 31% and 21% increases recorded in the same periods one year prior.
This deceleration represents a concerning trend, despite the overall growth remaining positive.
Analyst opinion varies considerably. Loop Capital maintains a $260 price objective, Needham projects $300, and B. Riley recently increased its target to $270. Meanwhile, Zacks downgraded its recommendation from “strong buy” to “hold.”
The average rating from 31 Wall Street analysts stands at “Moderate Buy” with a mean price target of $221.10.
Corporate insiders have been reducing their holdings. During the past three months, company insiders have offloaded approximately $33.7 million in shares. Director Robert Sauerberg disposed of 5,128 shares at $159.92 per share on August 25th, reducing his stake by 15.92%.
Technical indicators show Reddit’s 50-day simple moving average at $170.91, compared to its 200-day moving average of $158.53. The company commands a market capitalization of $29.57 billion with a beta coefficient of 2.02.
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