Reddit's Shares Experience Dip Due to Unsatisfactory User Expansion, Raising Questions on Potential Stock Purchase Prospects.
While shares of Reddit (RDDT) took a dip following its Q4 earnings report, the social media platform's stock is still up an impressive 20% year to date. Investors seem to have embraced the stock after its March 2024 IPO, as the stock price surged more than five times since its initial $34 debut.
Reddit is often described as a "global, digital city" where users can connect with like-minded individuals, learn, engage, and explore various topics. I'd say it's more like an anonymous message board platform that covers a vast array of topics.
Let's dive into the company's earnings report and guidance to see if this could be a buying opportunity.
Skyrocketing Revenue
Reddit's revenue grew at a blistering pace during Q4, soaring 71% year over year to hit $427.7 million. Ad revenue was a significant contributor, increasing by 60% to $394.5 million, boosted by increased impressions and stable prices. International ad revenue growth even outpaced that of the U.S., expanding by 76%.
Reddit's userbase also continued to grow during Q4, with daily users climbing 39% to 102 million and weekly users up 42% to 379 million. While daily user growth fell short of analyst expectations, both logged-in and logged-out users saw notable increases. The average revenue per user (ARPU) also climbed 23% to $4.21.
Focus on Ad Tech and AI
Reddit has been investing in advertising technology and artificial intelligence (AI) to improve its advertising campaigns and user experience. This includes conversation ads, Ask Me Anything (AMA) ads, and features that allow advertisers to engage with their target audience better. The company is also leveraging AI to automate ad campaigns and improve targeting.
Additionally, Reddit has developed an AI-powered tool called Reddit Answers to help users find answers to their questions. Users have been turning to this feature for everything from parenting advice to product recommendations. Improving search tools through AI and translating content into other languages are also top priorities for Reddit.
Profitability and Future Guidance
Reddit posted a net income of $71 million for Q4, its second consecutive profitable quarter, and its adjusted EBITDA soared to $154.3 million. Q1 revenue is projected to be between $360 million and $370 million, representing a 48-52% year-over-year increase. Adjusted EBITDA is expected to fall within a range of $80 million to $90 million, representing a substantial growth of 700-800%.
Is This a Buying Opportunity?
Despite some concerns about user growth, Reddit is still delivering impressive revenue growth and profitability metrics. Its significant international user base and investment in AI and ad tech position it well for future growth. With analysts expecting high-20% revenue growth and profitability metrics to continue rising, the current valuation of the stock seems reasonable.
If Reddit can maintain its strong user growth and take advantage of its international opportunities, the stock could be positioned for further upside. With the recent dip in price, this might be a worthy consideration for investors.
Investors might find this dip in Reddit's share price an opportunity, given its strong Q4 earnings and promising future guidance. Despite a tumbled daily user growth rate, Reddit's revenue and profitability metrics have been impressive, indicative of its financial health. With a focus on ad tech and AI, the company is well-positioned for future growth, particularly in its international user base. Therefore, staying invested in Reddit could potentially yield profitable returns.
