Reddit Jumps 11% on Strong Q1 Results & Outlook
Reddit (NYSE:RDDT) experienced a significant surge of 11% pre-market today after the social media company reported stronger-than-expected revenue and provided positive revenue guidance for the current quarter, underpinned by robust user growth.
Reddit, which launched its initial public offering in March, posted a Q1 loss of $8.19 per share, a wider loss compared to $1.05 per share a year earlier, while revenue increased by 48% to $243 million. This revenue figure exceeded analyst expectations, who had projected a loss of $6.32 per share on revenue of $214 million.
The widening losses were primarily due to expenses associated with the company’s IPO. The substantial revenue growth was attributed to a significant increase in user engagement, with daily active users growing by 37% to 82.7 million.
Steve Huffman, Co-Founder and CEO of Reddit, described the quarter as a strong start to the year and a significant milestone as the company made its public debut.
Looking forward, Reddit set its revenue expectations for the next quarter between $240 million and $255 million, which is well above Wall Street's forecast of $223 million.
| Symbol | Price | %chg |
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| 035420.KS | 174800 | 0 |
| 035720.KS | 39800 | 0 |
| 0700.HK | 354.4 | 0 |
| GOOG.NE | 28.23 | 0.18 |
Reddit Shares Drop 3% Following Loop Capital Downgrade on Valuation Concerns
Reddit (NYSE:RDDT) shares fell more than 3% on Tuesday after Loop Capital downgraded the stock from Buy to Hold, citing valuation concerns. The firm kept its price target at $75.
Loop Capital analysts pointed out that Reddit shares are currently trading at 10 times their 2025 estimated revenue, nearing the $75 target. They noted that even with potential upside to the 2024 and 2025 estimates, the stock's high valuation compared to peers remains a risk.
Since its IPO in March, Reddit's stock has more than doubled, resulting in a significant premium revenue multiple relative to similar companies.
Despite identifying potential drivers for incremental earnings, such as user growth, better monetization strategies, opening the user economy, and increased data licensing, Loop Capital expressed caution. They stated that even if 2025 revenue exceeds their projections by 10%, which is already above consensus, a 10X revenue multiple would suggest an $81 price target. This marginal upside does not justify maintaining the Buy rating.
The analysts also mentioned Reddit's expansion of advertising to conversation pages, which is the platform's fastest-growing ad space, aiming to leverage the contextually relevant area where 40% of comments and conversations are about products or services.
Reddit Started With Equalweight Rating at Morgan Stanley
Morgan Stanley analysts started covering Reddit (NYSE:RDDT) with an Equalweight rating and a price target of $45. The bank appreciates Reddit's unique position as a genuine platform with numerous communities, presenting an appealing offering for users and advertisers.
They recognize potential for ad revenue growth through innovative strategies and performance enhancements, along with a promising high-margin data licensing opportunity. The company's established AI-based data licensing business could contribute significantly to growth, with around $200 million in contracted revenue over the next three years.
The analysts project a compound annual growth rate (CAGR) of about 21% in ad revenue from 2023 to 2027. Despite Reddit's impressive gross margins of over 85% and potential leverage across research, sales, marketing, and general expenses leading to projected 22% adjusted EBITDA margins by 2027, Morgan Stanley remains cautious, awaiting further evidence of accelerated user growth or more rapid execution before adjusting his stance.
Reddit Started With an Underperform Rating at Bernstein
Bernstein analysts started covering Reddit (NYSE:RDDT) with an Underperform rating and set a price target at $40. The analysts expressed concern over Reddit's future beyond 2024, highlighting the challenges smaller social platforms face with ad targeting, measurement, and consumer purchasing intent.
Drawing comparisons with Pinterest and Snapchat, which have struggled despite having higher engagement, better ad tools, and more solid social graphs, the analysts questioned Reddit's potential given its lower engagement levels, anonymous user base, and not-safe-for-work content. They suggest that balancing growing engagement with revenue growth often involves trade-offs, making the pursuit of profitability and scalability particularly challenging for Reddit.
Reddit Extends Gains, Reaching All-Time High
Reddit (NYSE:RDDT) shares rose more than 15% intra-day today, reaching a new all-time high. Following a strong 30% climb on Monday, the social media platform maintained its momentum among investors since its initial public offering (IPO) on the New York Stock Exchange last week.
The stock, initially priced at $34 during its IPO, concluded Monday's session at $59.80. Reddit's debut brought in roughly $750 million from the sale of shares by the company and its existing shareholders. On the day of its debut, the company’s shares experienced a 48% upsurge, rewarding its community of moderators and users—collectively known as Redditors—who participated in the IPO through a directed-share program, a strategy previously adopted by companies like Airbnb and Rivian.
