Reddit RDDT is set to release its fourth-quarter 2024 results on Feb. 12.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

For the fourth quarter of 2024, the company expects revenues between $385 million and $400 million. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $408.01 million. 

The consensus mark for earnings is pegged at 24 cents per share, which has increased by a penny in the past 30 days. 

Let’s see how things have shaped up for this announcement.

Factors Likely to Have Influenced Q4 Performance

Reddit’s fourth-quarter performance is expected to have benefited from increased ad sales and the company’s growing AI initiatives.

Reddit is seeing strong growth in its advertising business, with improvements across objectives, channels, verticals, and geographies. This momentum is likely to have continued in the fourth quarter as the platform enhances its ad performance and offerings. Reddit also expects solid growth from its mid-market and SMB customers in the to-be-reported quarter.

Reddit’s AI-driven tools for advertisers, such as auto bidding, CAPI (Conversions API) and expanded ad offerings, enhanced ad performance and drove growth in the fourth quarter. These advancements are expected to have improved the ad experience for both advertisers and users in the quarter to be reported.

Reddit has introduced features like the Reddit Pro tools, helping businesses reach their audience more effectively. The company is also working on improving user experiences, making it easier for users to find relevant conversations and content. These advancements are expected to have increased user engagement in the to-be-reported quarter.

Reddit is focused on refining its ad solutions, especially in the middle and lower funnel, which has seen strong performance and increased adoption by advertisers. This is expected to have driven further revenue growth, particularly from sectors like auto, consumer goods, financial services, and pharmaceuticals, in the fourth quarter.

Reddit’s international user base is growing, with a focus on regions like France, India, and the Philippines. Machine translation efforts are expanding, making the platform more accessible in non-English languages. This is expected to have driven further user engagement and revenues in the to-be-reported quarter.

RDDT Trading at a Premium

RDDT shares have appreciated 329.9% over the trailing six-month period, outperforming the Zacks Computer & Technology sector’s return of 13.6% and the Zacks Internet - Software industry’s 38.6% rally.

RDDT Shares Beat Sector,Industry

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The company has outperformed its peer, Meta Platforms META, which is also expanding into advertising to compete in the content and communication services market. META stock has gained 38.5% over the trailing six-month period.

However, the Value Score of F suggests a stretched valuation for RDDT at the moment, which makes it a risky bet for risk-averse investors.

RDDT stock is trading at a premium with a forward 12-month Price/Sales of 21.65X compared with the industry’s 3.31X.

Price/Sales Ratio (F12M)

Image Source: Zacks Investment Research

RDDT’s AI-Driven Partnerships Boost User Experience and Ads

Reddit’s expanding partner base also strengthens its competitive prowess. Its partnership with Alphabet GOOGL boosts content discovery and community engagement by providing access to Reddit’s Data API. This enhances Google’s products and supports AI advancements, benefiting both companies.

Building on this, in December 2024, Reddit announced the testing of “Reddit Answers,” an AI-powered chatbot that leverages models from Reddit, Google, and OpenAI to provide users in the United States with curated summaries, links to discussions, and community recommendations. 

These are initially available on the web and iOS, with plans for a broader global rollout and language support. This move is expected to have significantly enhanced user engagement and retention, attracting more traffic to the platform in the to-be-reported quarter.

Reddit’s partnership with Integral Ad Science IAS strengthens the platform’s position in the advertising space. IAS’ AI-driven Total Media Quality product suite enhances advertiser confidence by providing trusted, third-party transparency and advanced measurement tools. This ensures brand safety while maximizing engagement across Reddit’s communities. It showcases how Reddit’s AI-driven advancements are improving the user experience and creating a secure and effective advertising environment.

Reddit: Smart Buy or Risky Bet?

Reddit’s strong portfolio and expanding partner base serve as key strengths. Its Growth Score of A indicates that investors who already own the stock might expect the company’s growth prospects to be rewarding over the longer term.

However, Reddit is closely monitoring potential impacts from the upcoming elections, which might have affected ad revenue and user engagement in the fourth quarter.

Moreover, macroeconomic uncertainties and stiff competition from other social media platforms may have impacted user engagement and ad market share in the to-be-reported quarter.

Reddit carries a Zacks Rank #3 (Hold), which implies investors should wait for a more favorable entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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