Why Reddit Stock Jumped This Week

Shares of Reddit (NYSE: RDDT) were moving higher this week, even though there was no news out on the social media stock. Instead, the company seemed to benefit from the broader rebound in the stock market, driven by cooling trade tensions, and gained on Friday in sympathy with a better-than-expected earnings report from Google parent Alphabet.

Investors also appeared to take advantage of the company's beaten-down stock price, as Reddit shares had fallen sharply in recent months on broader signs of economic weakness. As of 1:12 p.m. ET, the stock was up 26% for the week, according to data from S&P Global Market Intelligence.

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Reddit rebounds

Though there was no company-specific news out on the stock, the recovery in Reddit stock shouldn't come as much of a surprise, as the social media stock is one of the more economically sensitive right now. It makes most of its money from advertising, a business that tends to decelerate quickly in times of trouble. It also has exposure to artificial intelligence (AI) as part of its long-term strategy for monetizing its content.

Stocks soared over a three-day span this week, from Tuesday to Thursday, on signs of thawing trade tensions. Reddit stock jumped 20% over that period.

Reddit stock tacked on another 5.3% on Friday in response to a strong first-quarter earnings report from Alphabet, which posted a 14% increase in constant currency revenue in the first quarter to $90.2 billion. Google advertising revenue rose 8.5% to $66.9 billion, with Google Search and YouTube both up 10%.

What's next for Reddit

Reddit will report earnings next week, and the stock is likely to move as investors struggle to assess the long-term opportunity for the stock, which went public a little more than a year ago.

Analysts are expecting another jump in revenue of 52% to $370 million and see a per-share profit of $0.02. A recession would clearly be a challenge for Reddit, but if it can maintain steady growth in a difficult environment, the stock could soar. We'll learn more next Thursday.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.