Reddit Inc. shares advanced 0.7% in premarket trading on Monday, while Nasdaq futures slipped 0.5%. The move followed a favorable analyst note from Jefferies that pointed to strengthening advertising trends as the company moved into the second quarter.
Jefferies framed Reddit as positioned to deliver upside in the quarter based on three inputs: advertising checks that signaled momentum, largely stable traffic metrics, and positive commentary from the company on initiatives aimed at boosting engagement. The firms traffic review indicated that U.S. web and app daily active users (DAUs) recovered from low-single-digit month-over-month declines in February and March to low-single-digit month-over-month gains across the second quarter. On a year-over-year basis, total web daily active user growth increased slightly, from 15% in the first quarter to 16% in the second quarter.
On the advertising front, Jefferies checks suggested that Reddit continued to pick up share from several mid-sized social platforms, including LinkedIn, Pinterest, Snap, and X. Advertisers surveyed by the firm also reported an acceleration in spending across digital channels broadly during the second quarter, which implies Reddit benefited both from overall faster industry growth and specific market-share gains versus certain peers.
Jefferies identified average revenue per user (ARPU) as the principal catalyst for second-quarter revenue expansion and modeled revenue growth of 47% year-over-year for the period. The firm cited ongoing product work - including new advertising formats, improved targeting, and automation - as drivers that could increase advertiser adoption and spending. Those improvements are expected to help Reddit narrow an approximate 70% ARPU discount relative to U.S. peers.
The conversations Jefferies referenced indicate investors are seeking results modestly ahead of Street consensus. Specifically, investors appear to be looking for revenue outcomes in the mid-single-digit percent range above consensus and EBITDA results in the low-double-digit percent range above consensus. The analyst team also noted that guidance for the third quarter is anticipated to exceed consensus by a percentage similar to the beat seen in the prior quarter.
User growth remains an open question and a focus for market participants. Expectations detailed in the note call for a sequential increase in quarter-over-quarter net additions to U.S. logged-in daily active users, relative to the roughly 200,000 net additions recorded in the first quarter.
Key takeaways
- Stock reaction: Reddit rose 0.7% premarket, outperforming a 0.5% drop in Nasdaq futures.
- Traffic and engagement: U.S. web and app DAUs moved from slight month-over-month declines in early months to low-single-digit monthly growth during Q2; total web DAU growth improved from 15% YoY in Q1 to 16% YoY in Q2.
- Advertising backdrop: Jefferies checks show advertising momentum, with Reddit gaining share from several mid-sized social peers and benefiting from accelerated digital ad spending in Q2.
Risks and uncertainties
- User-growth sensitivity: Q2 outcomes hinge in part on whether net additions to U.S. logged-in DAUs increase sequentially versus the ~200,000 added in Q1 - a continued shortfall would pressure expectations (impacts social media and digital advertising sectors).
- ARPU execution: Reliance on average revenue per user to drive the projected 47% revenue growth creates exposure if new formats, targeting, or automation do not produce the expected uptick in advertiser spending (impacts ad tech and media buyers).
- Advertising environment: Although advertisers reported accelerated spending across digital channels in Q2, any reversal in industry ad growth or a loss of share to peers could narrow upside to revenue and EBITDA (impacts broader digital advertising and marketing budgets).
This analysis is based on the details presented in the Jefferies note and the traffic and advertising checks summarized by the firm. Projections and investor expectations described above derive from the conversations and modeling outlined in that note.