Reddit reports second-quarter earnings this Thursday, July 30. Heading into the print, the stock is down about 27% year-to-date, and most of that damage came from one story. The Wall Street Journal recently reported that Reddit had internally discussed restricting Google’s access to its platform content for AI training, as renewal talks over their data-licensing deal hit friction. The stock dropped roughly 9% that day.
Reddit and Google signed a $60 million-a-year licensing agreement in 2024, letting Google train its AI models on Reddit’s content. That’s under 2% of Reddit’s trailing revenue.
But investors reacted as if the number mattered less than the signal. If Reddit is willing to walk away from a live AI licensing partner, that raises questions about how durable the rest of Reddit’s data business really is, and whether Google’s AI-powered search results are already cutting into the referral traffic Reddit depends on. Let’s break down the case.
The Growth Story Hasn’t Slowed
Reddit hasn’t missed an analyst estimate since going public in 2024. Revenue growth has actually sped up: 61% year-over-year in the first quarter of 2025, then 69% in the most recent quarter. Diluted EPS rose 7x during this period. Free cash flow rose 145% year-over-year in the first quarter.
Reddit’s gross margin sits at 91%, up 100 basis points year-over-year, and net income margin runs at 29%, both far above typical social media peers.
Despite this growth, an analysis of short sellers’ activity and hedge fund sentiment is signaling strong negativity for the stock ahead of earnings. Read more on that here.
Users Keep Growing
Weekly active users grew 23% YoY to about 493 million. Daily active users outside the US grew even faster, up 26% to 73.3 million, now 58% of Reddit’s roughly 127 million total daily active users. Advertising revenue rose 74% year-over-year to $625 million, and Reddit keeps expanding content translation into 30 languages to grow that international base further.
Valuation and Growth Rate
Reddit trades at 24x forward earnings, an 84% premium to the 13x sector median. That premium looks smaller once you factor in growth: revenue is up 71% over the past 12 months against a 3% peer average, and diluted EPS is up more than 430% against a 7% peer average. On a PEG basis, Reddit trades at 0.55 versus a 1.26 peer average, a 57% discount. Wall Street’s average price target sits around $221-$227, implying 30%+ upside from current levels.
The Google Question Is The Real Risk
If Google’s AI search summaries keep cutting into clicks Reddit gets from search, that pressures the advertising business too, not just licensing. CEO Steve Huffman has argued Google needs Reddit’s data more than Reddit needs any single AI partner, and a renegotiated, usage-based deal could raise Reddit’s revenue instead of cutting it. Until a deal is announced, that stays a genuine unknown, not a settled bullish argument.
What Could Go Wrong
Reddit guided to 43%-45% revenue growth for the quarter, but Wall Street consensus sits near 47%-49%. The year-ago quarter was already an inflection point, with total revenue growth near 78%, making this one of the hardest comps of the year. If growth decelerates toward the mid-30s and the Google talks stall at the same time, the stock’s premium multiple has little left to stand on.
Carillon Eagle Mid Cap Growth Fund stated the following regarding Reddit, Inc. (NYSE:RDDT) in its Q1 2026 investor letter:
“Reddit, Inc. (NYSE:RDDT) is an online community platform where users share, discuss, and engage with content across a wide range of topics. The company posted solid revenue growth and profitability, while the closely watched metric of logged-in user growth was somewhat disappointing. Additional uncertainty around upcoming large language model (LLM) data-licensing renewals also pressured sentiment. The company authorized a stock buyback and provides an appealing audience for advertisers, as roughly half of its users are not active on other social media platforms.”
Copyright: dolgachov / 123RF Stock Photo
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