Reddit (NYSE: RDDT) reports second-quarter earnings on July 30, and the stakes are high. The stock has tumbled roughly 27% year-to-date, with most of the damage triggered by a single Wall Street Journal report revealing internal discussions about restricting Google’s access to Reddit’s platform content for AI training. That headline sparked a 9% single-day selloff, but beneath the noise lies a fundamental tension: Is Reddit’s data-licensing moat eroding, or is the market mispricing a hypergrowth asset?
The Growth Engine Hasn’t Stalled
Since its 2024 IPO, Reddit hasn’t missed a single analyst estimate. Revenue growth has accelerated: 61% year-over-year in Q1 2025, then 69% in the most recent quarter. Diluted EPS surged 7x over the same period, while free cash flow jumped 145% YoY in Q1. Gross margin sits at 91% (up 100 basis points YoY), and net income margin runs at 29% — both far above typical social media peers.
User Growth Remains Robust
- Weekly active users grew 23% YoY to ~493 million.
- Daily active users outside the U.S. rose 26% to 73.3 million, now representing 58% of Reddit’s ~127 million total DAU.
- Advertising revenue climbed 74% YoY to $625 million.
- Content translation expansion into 30 languages supports international monetization.
Valuation: Premium on Paper, Discount on Growth
Reddit trades at 24x forward earnings — an 84% premium to the 13x sector median. However, factoring in growth changes the picture: revenue is up 71% over the past 12 months versus a 3% peer average, and diluted EPS is up 430%+ versus 7%. 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 at $221–$227, implying 30%+ upside from current levels.
The Google Overhang Is the Real Risk
The $60 million/year Google licensing deal (signed in 2024) accounts for under 2% of trailing revenue. But investors reacted to the signal, not the dollar amount. If Reddit is willing to walk away from a live AI partner, it raises questions about the durability of its data-licensing model. More critically, if Google’s AI-powered search summaries reduce referral clicks to Reddit, the advertising business — not just licensing — faces pressure. CEO Steve Huffman argues Google needs Reddit’s data more than Reddit needs any single AI partner, and a renegotiated, usage-based deal could lift revenue. Until a deal is announced, this remains a genuine unknown, not a settled bullish argument.
What Could Go Wrong
Reddit guided 43%–45% revenue growth for the quarter, but consensus sits at 47%–49%. The year-ago quarter was an inflection point with ~78% growth, making this one of the toughest comps of the year. If growth decelerates toward the mid-30s and Google talks stall simultaneously, the stock’s premium multiple has little left to stand on. Carillon Eagle Mid Cap Growth Fund noted in its Q1 2026 letter that logged-in user growth was “somewhat disappointing” and flagged “uncertainty around upcoming LLM data-licensing renewals.”
Bottom Line
Reddit’s fundamentals remain exceptional: hypergrowth, expanding margins, and a unique international user base half of which isn’t active on other social platforms. The selloff reflects fear of an AI-driven traffic shift, not operational decay. For investors with a high risk tolerance, the current discount to growth may represent opportunity — provided the Google relationship stabilizes.
Frequently Asked Questions
- Why did Reddit stock drop 27% YTD? The primary catalyst was a Wall Street Journal report that Reddit internally discussed restricting Google’s access to its content for AI training, signaling potential friction in its data-licensing business.
- Is Reddit’s Google licensing deal material to revenue? No. The $60 million/year agreement represents under 2% of trailing revenue. The market reaction was driven by strategic signal, not financial impact.
- What is Reddit’s forward P/E and PEG ratio? Reddit trades at 24x forward earnings with a PEG of 0.55, a 57% discount to the peer average of 1.26, suggesting the premium multiple is justified by exceptional growth.
