Options Traders Expect a Volatile Earnings Reaction from Reddit Stock

Earnings season is in full swing, and social media site Reddit (RDDT) steps up to the plate after the market closes this Thursday, May 1, to reveal its Q1 2025 results. The event comes amid significant market turbulence, with RDDT stock experiencing a dramatic 28.6% decline year-to-date. 

Still a relative newcomer to Wall Street, RDDT is currently testing a tenuous foothold above its newly formed 200-day moving average. Ahead of its Q1 report, the stock has closed four straight days above this closely watched trendline.

What Does Wall Street Expect from Reddit Earnings?

Reddit's projected Q1 revenues of $360-370 million represent an impressive 48-52% year-over-year growth, though analysts anticipate modest earnings of $0.03 per share, marking a substantial 90% decline from the previous year. Previously, Reddit reported 71% revenue growth in Q4 2024 and robust advertising performance, particularly in international markets where ad revenue surged 77% year-over-year.

The social media platform maintained a solid user base of 101.7 million daily active unique users as of Q4 2024, though growth in this metric has slightly underperformed analysts’ expectations. Reddit's strategic initiatives - including the expansion of its "Reddit Answers" AI-powered interface to eight new countries, and partnerships with industry giants like Google (GOOG) (GOOGL) and OpenAI - showcase its commitment to innovation and growth. 

What Risks Does Reddit Stock Face Right Now?

However, the company faces mounting challenges, including increased competition from Snap's (SNAP) expanding ad features and potential impacts from EU privacy regulations. The current macroeconomic environment also poses significant headwinds for Reddit, as U.S. GDP contracted in Q1 amid growing concerns about trade tensions affecting digital advertising spend - particularly from Chinese advertisers. 

Reddit's valuation metrics still appear stretched, with a forward 12-month price/sales ratio of 12.54X significantly exceeding the industry average - suggesting potential overvaluation, despite the recent stock price pullback. Recent platform stability issues, including a global outage, have also added to operational concerns ahead of Reddit’s earnings report.

Reddit: What’s Priced in for Earnings 

Looking ahead, analysts maintain long-term optimism about Reddit's growth trajectory, projecting revenues to reach $3.5 billion by 2028, up from $1.3 billion last year. However, the near-term stock performance will likely be heavily influenced by the upcoming earnings report, broader market sentiment, and the company's ability to navigate challenging economic conditions while maintaining its growth momentum and profitability.

Options traders are currently pricing in a post-earnings move of just over 12% for RDDT stock, based on the stock’s at-the-money straddle expiring this Friday, May 2. The stock has averaged a slightly more dramatic move of 14.52% in either direction following its last four earnings announcements - although that average is skewed rather significantly by Reddit’s 41.97% spike after its October 2024 report.