Reddit Stock Drops to Crucial Support as Earnings Loom: Will It Rebound or Fall Further?

Reddit (NYSE:RDDT) stock has slumped to a key support level ahead of its third-quarter earnings report. It fell to $144.25, which is 45% below its high this year and 50% below its all-time high. Will the stock extend its steep decline or bounce back after the results?

Reddit Earnings Report to Show Steady Growth

Reddit stock will publish its financial results this week, and analysts expect the numbers to show that its revenue continued soaring. 

The most recent earnings showed that the social media giant had 130.3 million daily active unique users of 130.3 million, up by 18% from a year earlier. Revenue jumped by 61% to $805 million, the eighth consecutive quarter of over 60%. Its net income rose to $253 million. 

Benzinga data shows that analysts expect Reddit’s revenue to jump by 49% in the third quarter to $874 million. The most optimistic analyst expects that its revenue soared to $926 million. 

Further, the average earnings per share is expected to jump to $1.32, up sharply from $0.8 in the same period last year. This revenue and profitability growth makes it the fastest-growing publicly traded social media company in the US. 

More metrics suggest that Reddit’s business has become highly undervalued, with the forward price-to-earnings ratio being 18.80. This multiple is slightly lower than other technology companies. 

The results come as Reddit reconsiders its partnership with Google, under which Google pays Reddit $60 million a year. Reddit believes the arrangement is cannibalizing traffic to its website. 

Most analysts have a bullish outlook for Reddit shares. Needham’s Laura Martin has a target of $300, up sharply from the current $144. DA Davidson has a target of $185, while Morgan Stanley’s Brian Nowak sees it hitting $210.

Reddit Stock is at Crossroads Ahead of Earnings

The upcoming earnings come as the stock has moved to an important support level of $144.25, its lowest level in August, September, and October. Moving below that level will confirm more downside in the near term. 

The stock has slumped below the 50-day moving average and the Value Area Low of the fixed range volume profile. A drop below the key support level of $142.23 will point to more downside, potentially to the support of $128.12, its lowest level in February. The alternative is that it rebounds towards the key resistance of $164. 

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