Reddit’s recent earnings report has sent shockwaves through the investment community, with the company’s soaring revenue and user growth fueling a frenzy of speculation and analysis. But amidst the hype, there are lingering questions about the sustainability of this meteoric rise and the true value of this social media juggernaut.
Reddit’s Soaring Revenue Fuels Explosive Growth, But User Gains Falter
In its Q4 2024 earnings report, Reddit (RDDT) delivered a blockbuster performance, with revenue skyrocketing 71% year-over-year to $428 million, surpassing analysts’ estimates of $405 million. The company’s earnings per share of $0.36 also exceeded expectations of $0.25, further fueling investor enthusiasm. However, amidst this financial success, Reddit’s daily active user (DAU) growth faltered, rising 39% to 101.7 million but missing the consensus estimate of 103.1 million. CEO Steve Huffman attributed this slower user growth to volatility caused by a change in Google’s search algorithm, though he reassured investors that search traffic recovered in Q1 2025.
Behind the Numbers: Unpacking Reddit’s Blockbuster Q4 Earnings
Reddit’s Q4 earnings report was a testament to the company’s growing profitability and operational efficiency. The company’s adjusted EBITDA margin surged to an impressive 36.1%, a significant improvement from the 9.3% reported a year ago. This remarkable growth was driven by Reddit’s successful advertising initiatives and lucrative data licensing deals with tech giants like Google and OpenAI. Looking ahead, Reddit provided an optimistic outlook for Q1 2025, guiding for revenue of $365 million and adjusted EBITDA of $85 million, both exceeding analyst projections.
Can Reddit Sustain Its Meteoric Rise Amid Challenges?
While Reddit’s recent performance has been nothing short of impressive, questions remain about the company’s ability to sustain this meteoric rise. Since its $34 IPO in March 2024, RDDT stock has skyrocketed over 530%, fueled by the market’s insatiable appetite for high-growth tech names. At around $200, the stock trades at a lofty 22 times trailing revenue, a valuation that some analysts view as justified given Reddit’s expected 30%+ revenue CAGR over the next three years and accelerating bottom-line expansion. However, others have raised concerns about the company’s dependence on Google and the potential for revenue deceleration later in 2025.
Navigating Reddit’s Valuation: Is the Hype Justified?
Despite the concerns, most analysts remain bullish on Reddit, recommending investors buy the dip in the wake of the post-earnings stock volatility. They cite the company’s strong user engagement, innovative new ad products, and industry-leading incremental margins as key drivers of future growth. Reddit’s 98 Composite Rating, which reflects its leading fundamentals among peers, further reinforces the optimism surrounding the stock. However, investors should remain vigilant, as the stock’s meteoric rise has set the bar high for continued outperformance.
Key Levels to Watch as Reddit Stock Faces Volatility
As Reddit navigates the post-earnings volatility, investors will be closely watching key support and resistance levels. After the recent dip, potential support levels are $180, $158, $139, and $104, with $230 emerging as a potential resistance area. The stock’s outperformance relative to the S&P 500 since its listing is a testament to the market’s confidence in Reddit’s growth prospects. However, investors should brace for continued volatility as the company works to address the challenges and capitalize on the opportunities that lie ahead.
