Reddit Announces Third Quarter Revenues

Reddit is set to announce its third-quarter earnings on Thursday. Investors are closely watching for signs of a slowdown in daily active users and updates on potential expansions in artificial intelligence licensing agreements.

Wall Street analysts tracked by Bloomberg predict that the social media platform will report an adjusted earnings per share of $1.07 for the period. This figure represents an increase of over 80% compared to the $0.59 EPS value from the same quarter last year, marking Reddit's first profit since its IPO.

The company is expected to generate $549 million in revenue for this period, indicating a 58% increase year-over-year. According to analysts' estimates, Reddit will report 114 million daily active users in the September quarter. This reflects a 17% increase compared to the same period last year, while also highlighting a slowdown in user growth.

Reddit has recorded a slowdown in daily active user numbers for five consecutive quarters after a period where the user count increased by over 50% in the second quarter of 2024.

Advertising revenue is expected to rise by 63% to $513 million in the third quarter. Some Wall Street analysts from firms like Deutsche Bank, B Riley Securities, and Raymond James reiterated their 'Buy' recommendations for the stock this month.

Deutsche Bank analyst Benjamin Black argued that Reddit's efforts to attract users—such as promoting the platform through advertisements on Facebook—could boost advertising revenue this quarter. Black raised his price target for the stock from $245 to $205, stating, 'While concerns about referral traffic related to Google persist, internal initiatives provide greater focus on controlling user growth.'

Analysts are also monitoring announcements regarding Reddit's licensing agreements with Google and OpenAI. In mid-September, Reddit’s stock rose following Bloomberg reports that the company would begin negotiations for a data licensing agreement with Google, part of Alphabet. This new pricing model would allow Reddit to receive more payment as its content is used more frequently in responses generated by these companies' artificial intelligence.

However, the stock saw a significant drop at the beginning of October after third-party data showed that citations from Reddit within OpenAI's ChatGPT application had declined in mid-September. This raised concerns about Reddit's bargaining power regarding its licensing agreement with the AI developer.

Some analysts argue that the third-party data could be flawed. Raymond James analyst Josh Beck emphasized that 'care should be taken not to draw too many conclusions from a single data point.'