$Reddit(RDDT)$ will report its Q1 results after Tuesday's close, marking its first turn in the earnings spotlight since the social media platform's late-March initial public offering (IPO).
Reddit has become one of the best sources to train generative AI (artificial intelligence) large language models (LLMs), Over the past 18 years, Reddit’s content library contains 1 billion posts and 16 billion comments collected. The platform itself hosts 1.2 million new posts and 7.5 million new comments every single day,
This should give RDDT pricing power given there are no high-quality substitutes at a similar scale. Market is expecting Reddit to report a first-quarter per-share loss of $8.71 with $212.8 million in revenue.
Reddit (RDDT) Implied Straddle
Implied straddle for upcoming earnings is 14.3%. Needham analyst Laura Martin recently initiated coverage on RDDT stock with a Buy rating and a $55 price target, representing implied upside of roughly 17% to current levels.
Reddit (RDDT) IV Percentile Rank
RDDT implied volatility (IV) is 88.2, which is in the 21% percentile rank. This means that 21% of the time the IV was lower in the last year than the current level. The current IV (88.2) is -5.2% below its 20 day moving average (93.0) indicating implied volatility is trending lower.
Reddit (RDDT) IV vs 20-Day HV
The current IV (88.2) in RDDT is 27.7% above its 20 day HV (69.1) suggesting that options markets are predicting future volatility to trade above the most recent 20 day realized volatility.
Reddit (RDDT) IV vs 252-Day HV Divergence
Traders frequently use the difference between implied volatility and historical volatility to measure divergence from the mean. Using the 252 HV as the long term benchmark, the implied volatility (88.2) is currently 0.1% above the 252 day HV (88.1) mean.
Reddit (RDDT) Technical Analysis Before Earnings
Based on the 4 hour chart, we could see that Reddit have been trading sideway and with MACD converging, there seem to be little movement.
One good thing is that there is a slight demand detected in KDJ, and this could be the build up for an upside, as observed from past pattern.
Reddit (RDDT) Seasonal Volatility by Day of Year
Insights: Historically, implied volatility for RDDT tended to rise the most in March with a median IV Of 135.2, while May tended to be when implied volatility declined To its lowest levels With median IV Of 86.4. Historically, the median IV for the current month of May was 86.4 compared to the current IV of 88.2. The IV level in June following May tended to be lower, with a median IV of
If we looked closely we will tend to discover that Reddit might be a good source of data for training LLM, but for itself to make money from the platform, it looked like it is trading rather flat.
Summary
Despite the positive outlook, BofA maintains a Neutral rating for Reddit due to its current valuation. The price target is based on a 6.5x EV/Revenue multiple for 2025.
This is the reason why I think it would be better to focus on the price action of how Reddit would be trading post earnings.
Appreciate if you could share your thoughts in the comment section whether you think Reddit would provide an upside after a stellar earnings, or it could be brought down by valuation concerns?
@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.
Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.
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