Truist Securities has reaffirmed its bullish stance on Reddit (NYSE: RDDT) ahead of the company's third-quarter earnings report, scheduled for Thursday. Analyst Youssef Squali reiterated a Buy rating and a $275 price target, signaling confidence in the platform's advertising momentum despite ongoing concerns about its reliance on search traffic.
The stock has faced significant headwinds in 2026, trading roughly 45% below its year-to-date high. Truist's reiteration provides a much-needed boost for investors who have grown cautious about the social media company's growth prospects.
Strong Growth and Profitability Expected
Squali projects Reddit will report approximately 50% year-over-year revenue growth and an adjusted EBITDA margin near 45% for the quarter. This combination of rapid expansion and high profitability is a key attraction for investors, as it demonstrates the company's ability to convert incremental revenue into earnings efficiently.
From a technical perspective, Reddit's relative strength index (RSI) is currently in the mid-30s, indicating that the stock is approaching oversold territory. Historically, such levels have often preceded a relief rally, adding to the case for owning the stock.
Monetization Driving Growth
Truist describes Reddit as one of the fastest-growing and most profitable advertising platforms. The company's latest reported results support this view: Q2 advertising revenue surged 64% to $762 million, while global daily active uniques rose 18% to 130.3 million. Average revenue per unique increased 36% to $6.18, showing that growth is driven by both a larger audience and better monetization.
This distinction is crucial because revenue can continue to outpace traffic growth if advertisers find more value in reaching Reddit's users. However, Squali explicitly notes that the durability of these monetization improvements is a key concern. Investors should monitor whether strong revenue per user is accompanied by healthy engagement levels.
Key Questions for Management
Beyond quarterly ad performance, management faces a strategic question: can Reddit preserve the commercial value of its conversations as artificial intelligence (AI) changes how people access information? Squali highlights Google algorithm changes, potential AI disintermediation, and data-licensing renewals or new agreements as principal investor concerns.
The investment implications cut both ways. AI services could make Reddit's content more valuable to license, but they could also allow users to get answers without visiting the platform. Investors should listen for evidence that Reddit can turn this distribution into durable commercial relationships while protecting engagement.
As Reddit prepares to report earnings, the market will be watching closely to see if the company can address these challenges and justify Truist's optimistic outlook.
This article is for informational purposes only and does not constitute financial advice.
