Reddit Inc. (NYSE: RDDT) reported impressive second-quarter results on Tuesday, showcasing substantial growth across key metrics.
However, JPMorgan's Doug Anmuth maintains a neutral stance, warning investors of potential volatility due to an upcoming lock-up expiration.
Q2 Performance: Reddit Surpasses Expectations
Reddit's second quarter performance dazzled with 91 million daily active users, marking a 51% year-over-year increase. The company reported revenue of $281 million, a 54% rise that exceeded expectations.
According to Anmuth, "Reddit reported strong 2Q results w/upside across all key metrics from DAUs to Revenue to EBITDA."
The platform's robust performance indicates a growing user base and successful monetization efforts. But with shares currently priced at $54.36, Reddit's long-term trajectory remains uncertain.
Advertising Growth: Mixed Signals
Reddit's advertising business has been a significant growth driver, with performance ads contributing to over half of the revenue surge. The scaled mid-market/SMBs sector experienced more than 50% year-over-year growth.
However, Anmuth notes, "The 3Q guide implies some Advertising deceleration... management believes the ad market is stable despite recently reported challenges."
Despite Reddit's optimism, there are signs that ad revenue growth might slow in the third quarter. JPMorgan projects a more conservative outlook for third quarter advertising, reflecting a potential deceleration of around 700 basis points.
Lock-Up Expiration: A Potential Hurdle
Reddit faces potential market turbulence with the lock-up expiration on Aug. 9, allowing insiders to sell their shares.
Anmuth cautions, "Near-term, we expect increased volatility heading into and around Friday's lock-up expiration, which could put pressure on shares."
Strategic Moves, Future Outlook
Reddit's strategic initiatives include acquiring Memorable AI for $20 million and launching content partnerships with sports leagues, which could bolster revenue. Yet, Anmuth remains cautious, adjusting Reddit's price target to $59 from $67.
As Reddit navigates these challenges, its ability to maintain momentum amid potential volatility will be closely watched by investors and market enthusiasts alike.