Reddit's Q3 DAU Pressure Offset by Strong Ad Trends, Wedbush Says

MT Newswires Live00:02

Reddit (RDDT) faces near-term pressure on daily active users heading into its Q3 report on Oct. 29, but strong advertising trends and higher monetization support a "strong risk/reward" setup, Wedbush said in a note Friday.

The firm lowered Q3 and Q4 US daily active user estimates because of "traffic headwinds" tied to Alphabet's (GOOG, GOOGL) Google algorithm changes and artificial intelligence search products. However, higher ARPU estimates offset the weaker user outlook, leaving revenue forecasts essentially unchanged, the note said.

Wedbush expects "strong top line and EBITDA results" as Reddit continues to benefit from "ad product strength" and a healthy advertising market. The firm also forecasts Q3 ad revenue of $824 million, up 50% from a year earlier.

The analysts said investor confidence in a favorable renewal of Reddit's data-licensing deal with Google has weakened, but believes Reddit has "more leverage than appreciated" because of its unique data and broader pool of potential buyers.

Wedbush maintained its outperform rating on Reddit with a price target of $221, while noting "uncertainty" around the upcoming earnings report.

Price: 147.64, Change: -2.63, Percent Change: -1.75

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