Shares of Reddit (RDDT) jumped 9.3% to close at $158.10 on Wednesday, making the stock the second-best performer in the S&P 500.

The rally followed comments from Baird analyst Colin Sebastian, who said Wall Street has already priced in the possibility of a disappointing or stagnant renewal of Reddit's data licensing agreement with Google. In other words, if the renewed contract comes in weaker than the current terms, investors should not expect a significant selloff.

The existing agreement, which generates roughly $130 million in annual revenue for Reddit, is set to expire in early 2025. Renewal discussions are currently underway. The deal is part of a broader wave of licensing arrangements struck between AI developers and content owners, as companies building large language models seek structured access to human-generated text for training and retrieval. For Reddit, whose advertising business generated $2.6 billion in revenue over the trailing twelve months, the Google agreement represents a comparatively small but strategically significant income stream. According to Sebastian, a less favorable renewal is unlikely to hurt the stock price significantly, while a stronger-than-expected agreement could lift shares by $10 to $20.

A key point of contention in the negotiations involves how Reddit's content appears and is referenced across Google's ecosystem. AI-powered search platforms, including Google and OpenAI, prefer keeping users within their own environments to protect advertising revenue, creating friction with Reddit's distribution objectives. Reddit has also benefited from its content surfacing prominently in conventional Google search results, so any change in how AI-driven summaries treat links to the site has implications for its traffic. This tension between AI platforms and publishers over referrals and attribution has become a recurring theme in content licensing talks across the industry.

Strong Quarterly Performance

Reddit's latest quarterly report showed impressive results. The company delivered Q2 earnings per share of $1.25, well above analyst estimates of $0.95. Revenue reached $804.91 million, up 61% year-over-year and surpassing the consensus forecast of $731 million. In the comparable quarter a year earlier, Reddit reported EPS of just $0.45, underscoring the scale of the improvement. Reddit went public in March 2024, and its advertising-led monetization has been the primary driver of the post-IPO revenue acceleration.

The company posted a net profit margin of 31.35% and a return on equity of 29.02%. Wall Street now projects full-year earnings per share of $5.27.

User Base Growth Decelerating

While financial metrics remain robust, user acquisition momentum has been slowing. Global daily active users grew 17% year-over-year in Q1 and 18% in Q2, compared with 31% and 21% growth in the prior-year period. The deceleration is notable, even though growth rates remain positive. Daily active users are the metric advertisers watch most closely on social platforms, since engagement levels directly influence ad pricing and inventory demand.

Analyst sentiment varies across the Street. Loop Capital maintains a $260 price objective, Needham targets $300, and B. Riley recently raised its target to $270. Zacks downgraded the stock from "strong buy" to "hold" in recent weeks. Among 31 covering analysts, the average recommendation stands at "Moderate Buy" with a mean price target of $221.10.

Corporate insiders have been active sellers recently, offloading approximately $33.7 million in shares over the past three months. Board member Robert Sauerberg sold 5,128 shares at $159.92 on August 25th, reducing his holdings by 15.92%. Insider selling following a company's first year as a public company is common, as early shareholders and directors gain liquidity after lockup expirations, though it is a data point investors often monitor alongside fundamentals.

Technical indicators show Reddit's 50-day moving average at $170.91 and its 200-day moving average at $158.53. The company carries a market capitalization of $29.57 billion and a beta coefficient of 2.02, meaning the stock has historically moved roughly twice as much as the broader market in both directions.