Reddit (RDDT) Is Up After Record Earnings and AI Data Deals Is a New Growth Era Emerging?

• Reddit recently reported record-breaking second quarter earnings, achieving GAAP profitability with net income of US$89 million and a 78% year-over-year revenue increase, driven by strong progress in AI-driven advertising and international user growth.
• An interesting development is Reddit's data licensing for AI, highlighted by ongoing negotiations with Google for a dynamic usage-based deal, which underscores Reddit’s growing influence as a key data source for training large language models.
• We'll explore how Reddit's surge in data licensing for AI is changing the outlook for its long-term growth and earnings narrative.

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Reddit Investment Narrative Recap

To be a Reddit shareholder, it's essential to believe that user-generated content platforms and AI data licensing can together provide sustainable high growth amid rapid change in digital ads and social engagement. While Reddit's record Q2 earnings and GAAP profitability signal strong momentum, especially with a surge in AI-driven sales, the biggest short-term catalyst remains robust ad performance, and the largest risk is the platform's reliance on ad revenue, given potential shocks from shifts in online advertising or privacy regulations. The latest news supports these trends, but does not fundamentally change the risk of overdependence on ad revenue for now.

Against this backdrop, Reddit's newly issued Q3 guidance, forecasting US$535 million to US$545 million in revenue, highlights management's confidence in both international and AI-related business lines. This marked step-up in revenue expectations aligns with analyst focus on Reddit’s scaling and monetization efforts, reinforcing the importance of its ability to maintain advertising growth as competition and compliance demands evolve.

But if regulations or privacy changes disrupt ad tracking sooner than expected, investors should be alert to the risk that...

Read the full narrative on Reddit (it's free!)

Reddit's outlook anticipates $3.8 billion in revenue and $1.0 billion in earnings by 2028. This implies a 31.8% annual revenue growth rate and a $783.7 million increase in earnings from the current $216.3 million.

Uncover how Reddit's forecasts yield a $219.15 fair value, a 9% downside to its current price.

Exploring Other Perspectives

Simply Wall St Community members have put forward 28 separate fair value estimates for Reddit stock, spanning US$38 to US$292. Despite strong recent earnings, reliance on ad revenue remains a key sensitivity as users weigh different paths for the company’s growth. If you are looking to understand why opinions diverge so widely, explore several alternative viewpoints from the community and beyond.

Explore 28 other fair value estimates on Reddit - why the stock might be worth less than half the current price!

Build Your Own Reddit Narrative

Disagree with existing narratives? Create your own in under 3 minutes - extraordinary investment returns rarely come from following the herd.

• A great starting point for your Reddit research is our analysis highlighting 3 key rewards that could impact your investment decision.
• Our free Reddit research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate Reddit's overall financial health at a glance.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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