Should You Buy, Sell, or Hold Reddit Stock Before Q2 Earnings Release?

The consensus mark for earnings is pegged at 99 cents per share, which has been unchanged over the past 30 days. This indicates year-over-year growth of 120%.

RDDT’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 67%.

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

Factors Likely to Have Influenced Q2 Performance

Reddit’s second-quarter performance is expected to have benefited from continued momentum in its advertising business. Advertising revenues grew 74% year over year in the first quarter of 2026, driven by both increased impressions and higher pricing. 

The company has invested heavily in its ad stack, particularly in automation and machine learning, resulting in more efficient campaigns for advertisers. The Reddit Max platform, launched in the first quarter of 2026, has already delivered a 17% reduction in cost per action and a 25% increase in conversion outcomes for advertisers. This strong adoption and performance are likely to have carried over into the second quarter of 2026, supporting further revenue growth.

Another significant benefit for the second quarter of 2026 is Reddit’s focus on expanding its user base and increasing engagement. Management has set an ambitious goal to double daily active users in the United States from 50 million to 100 million by leveraging improvements in onboarding, feed quality, and machine-learning-driven personalization. The company has already seen progress in new user retention and search engagement, with search weekly active users up 30% year over year. These efforts are expected to have driven higher user frequency and engagement, which should boost ad inventory and monetization opportunities in the to-be-reported quarter.

Reddit’s unique position in the AI landscape has been a key catalyst. With more than 25 billion posts and comments, Reddit’s authentic human conversations are increasingly valuable for both AI model training and for users seeking genuine perspectives. The company has established important partnerships with major AI players like Google and OpenAI, generating additional revenue streams through data licensing.

However, a challenging macroeconomic environment and seasonal volatility remain a headwind. Stiff competition in the digital advertising market poses a significant challenge for Reddit.

RDDT Shares Underperform Sector

RDDT shares have plunged 22% in the year-to-date period, underperforming the Zacks Computer & Technology sector’s return of 9.9%.

The company’s shares have also underperformed its peers, which include Meta Platforms META, Pinterest PINS and Alphabet GOOGL, which are also expanding their footprints in the digital advertising space. While Meta Platforms and Pinterest shares have lost 10% and 9.2%, respectively, Alphabet’s shares have gained 4.3% in the year-to-date period.

RDDT Stock Performance

Image Source: Zacks Investment Research

RDDT stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment, which makes it a risky bet for risk-averse investors.

In terms of the forward 12-month Price/Sales, Reddit is trading at 8.95X, higher than the Internet - Software industry’s 3.75X, Meta Platforms 5.32X, Pinterest’s 2.53X, and Alphabet’s 8.06X.

RDDT Valuation

Image Source: Zacks Investment Research

RDDT Benefits From Expanding Portfolio

Reddit’s product innovation remains a core pillar of Reddit’s growth strategy. The company is rolling out new ad formats, such as dynamic product ads (DPA) and collection ads, and integrating with platforms like Shopify to attract more retail and e-commerce advertisers. 

These initiatives are designed to capture high-intent shopping conversations, which grew 40% year over year, and improve conversion rates for advertisers. Brands using Reddit’s DPA have seen more than 90% higher return on ad spend compared to previous campaigns. The ongoing expansion of the Reddit for Business ecosystem and the adoption of AI-powered creative tools are expected to further enhance advertiser value in the to-be-reported quarter.

Reddit is benefiting from a robust international expansion strategy that is fueling both its financial performance and long-term growth prospects. One of the key drivers behind this international momentum is Reddit’s investment in machine translation, which has enabled the platform to support content in more than 30 languages, helping to build local communities and increase engagement outside the United States. The company is also investing in features like bot verification, improved onboarding and faster app performance to enhance user experience.

Conclusion

Reddit’s prospects benefit from an expanding advertising business, international expansion, an expanding clientele and rising user engagement.

However, a challenging macroeconomic environment and seasonal volatility are headwinds. Stretched valuation and stiff competition also remain concerns.

Reddit currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to 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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This article originally published on Zacks Investment Research (zacks.com).

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