Reddit (RDDT) stock is falling Thursday after the social media platform beat revenue and earnings expectations but fell short of analysts' forecasts for users during its fourth quarter.
In the three months ending December 31, Reddit's revenue increased 71.2% year over year to $427.7 million, boosted by a 39.1% increase in daily active uniques to an all-time high 101.7 million and a 23.1% increase in average revenue per unique to $4.21. Earnings per share (EPS) rose to 36 cents from breakeven in the year-ago period.
"It was another strong quarter as we accomplished exciting milestones across revenue and international growth," said Reddit CEO Steve Huffman in a statement. "However, what's most exciting is still ahead. We're focused on providing a best-in-class experience for finding community and trusted information, proving that Reddit is for everyone, everywhere."
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The headline results beat analysts' expectations. Wall Street was anticipating revenue of $405 million and earnings of 25 cents per share, according to CNBC.
However, users were expected to come in at 103.1 million. In his Q4 Letter to Shareholders, Huffman explained that the user numbers were affected by an algorithm change at Google.
"Later in Q4, we experienced some volatility with Google Search triggered by a periodic algorithm change, but traffic from search has recovered so far in Q1, and we've regained momentum," he said.
The CEO added that "referrals from search fluctuate from time to time" and that Reddit has "navigated numerous algorithm updates" in the past and "did an excellent job adapting to these latest changes effectively."
For its first quarter, Reddit said it expects to achieve revenue of $360 million to $370 million, ahead of analysts' expectations of $358 million.
Is Reddit stock a buy, sell or hold?
Reddit stock has been tearing up the price charts since it went public in March, rising about 330% even accounting for the decline of more than 6% on Thursday. That makes RDDT a pretty successful initial public offering so far. And Wall Street remains upbeat on the social media stock.
According to S&P Global Market Intelligence, the consensus recommendation among analysts it tracks is a Buy.
However, analysts' price targets have not been able to keep up with the surging stock price. The average price target currently stands at $198.05, representing a slight discount to current levels.
Financial services firm Needham maintained its Buy rating and raised its price target on RDDT stock to $220 from $190 following the earnings beat.
"From an earnings and valuation point of view, we are most optimistic about RDDT's upside from licensing its data to train GenAI Large Language Models (LLMs)," says Needham analyst Laura Martin, CFA, in a note this morning.
Martin says Reddit "is the best source of this type of daily information for LLMs," citing a content library of "1 billion posts and 16 billion comments collected over the past 18 years." Martin adds that Reddit's platform "hosts 1.2 million new posts and 7.5 million new comments every day."
Related Content
-
What to Expect in the Rest of This Year's Job Market — and Advice for Job SeekersEspecially in the most competitive fields, job seekers will need to strategize to stand out.
-
Five Tips For Estate Planning in 2025We're almost halfway through the year. Is your estate in order? If not, here are some tips to get it done in 2025.
-
Is It Still Worth It to Gift Savings Bonds?Kiplinger editor explores if it's still a good idea to get savings bonds as gifts for children, looking at their returns and usability.
-
Don't Veer Off Course at the First Sign of a Squall in the MarketsWhen markets go nuts and investor sentiment drops, you can keep your sanity by trusting in and sticking with your long-term plan.
-
How Business Owners Can Prepare for a Terminal DiagnosisThe most important thing is readiness, whether the owner faces a life-changing diagnosis or an employee does.
-
Advisers, Take Note: How 2025 Social Security Changes May Impact Your ClientsWhat financial advisers might need to know to help their clients navigate Social Security in 2025.
-
Stock Market Today: Have We Seen the Bottom for Stocks?Solid first-quarter earnings suggest fundamentals remain solid, and recent price action is encouraging too.
-
Social Security Is Taxable, But There Are WorkaroundsIf you're strategic about your retirement account withdrawals, you can potentially minimize the taxes you'll pay on your Social Security benefits.
-
Serious Medical Diagnosis? Four Financial Steps to TakeA serious medical diagnosis calls for updates of your financial, health care and estate plans as well as open conversations with those who'll fulfill your wishes.
-
What Wall Street's CEOs Are Saying About Trump's TariffsWe're in the thick of earnings season and corporate America has plenty to say about the Trump administration's trade policy.
