Reddit Q3 Preview: Will Ads and AI Sustain Growth?
Reddit Inc. (RDDT) will announce its third-quarter 2025 results on October 30, after market hours. Analysts predict earnings per share of $0.52, with expected revenue around $549 million. This potential performance could mark the company’s fifth consecutive profitable quarter.
Growth Drivers: Advertising and AI
This year, Reddit’s stock has surged by 27%. The primary drivers of this growth are advertising revenue and data licensing, which have significantly boosted investor confidence. Following a challenging period leading to its IPO, Reddit has reportedly turned its operations around.
- Ad sales are a major revenue source.
- Enhanced demand and improved advertising tools have contributed to this growth.
A New Revenue Stream Through AI
In addition to traditional ad sales, Reddit has tapped into new revenue by allowing AI firms access to its user-generated content. This initiative helps these companies train their language models and represents a less cyclical income source compared to advertising. Investors are now keen to observe how much of Reddit’s revenue comes from these AI partnerships.
Quarterly Performance Highlights
Last quarter showcased impressive growth, with revenue increasing by 78% year-over-year. Ad sales alone rose by 84%. Such performance raises questions about daily active users and engagement, as Reddit aims to convert site traffic into reliable income.
Key Metrics to Watch
- Revenue from AI partnerships.
- Daily active users and their engagement levels.
- Average Revenue Per User (ARPU).
Currently, Reddit’s stock trades at approximately 44 times its forward price-to-earnings ratio, which is higher than many of its social media competitors. Investors expect this valuation to remain stable if the company can expand its profit margins and ensure that AI collaborations generate consistent revenue.
A robust performance, along with confident future guidance, could sustain the recent rally in Reddit’s stock. However, any disappointing results or a cautious outlook might challenge the justifiability of its current valuation.
