Reddit (NYSE:RDDT) will report its fourth quarter earnings on February 5, with Jefferies analysts expecting momentum in its advertising business to result in a beat and raise.
The firm said its proprietary advertising checks indicate Reddit continues to benefit from faster growth in performance-based ad products, alongside increased adoption among small- and mid-sized advertisers.
Jefferies expects average revenue per user (ARPU) to remain the primary driver of top-line growth in the quarter, supporting a sharp year-over-year increase in revenue.
“We expect ARPU (up 33% year-over-year) to remain the key driver of Revenue growth (up 55% year-over-year), underscoring RDDT’s nascent opportunity to close the monetization gap to PINS,” the analysts wrote.
For Q4, Wall Street expects revenue to jump to $667.6 million from $427.7 million in the year-ago period. Earnings per share are also expected to improve to $0.96 from $0.36.
Jefferies added that broader caution in the digital advertising market may have helped reset expectations ahead of the print. Recent conservative ad checks from peers, along with rising concerns around competition from platforms such as TikTok and OpenAI, have skewed risk to the upside going into the quarter, the analysts believe.
User trends will also be in focus. The analysts wrote that they are watching for further stabilization in US daily active user growth, which would support Reddit’s longer-term growth outlook. Web traffic trends appeared stable through the end of the year and showed signs of acceleration early in the first quarter, Jefferies added.
On profitability, Jefferies believes consensus estimates for the first quarter may be conservative. The firm noted that the Street is currently modeling incremental margins below recent levels, a shift that could leave room for upside if operating leverage remains stronger than expected.
Jefferies has a ‘Buy’ rating on Reddit, with analysts citing continued advertising momentum, improving monetization, and tempered expectations as key factors heading into the earnings report.
Shares of Reddit traded hands at $193 on Wednesday afternoon.