Reddit (RDDT) stock jumped 5% in early trading Wednesday after the social media platform beat top- and bottom-line expectations in its first earnings report as a public company. Shares have since pared a portion of these earlier gains, but are still comfortably higher.
In the three months ended March 31, Reddit's revenue surged 48.4% year-over-year to $243 million. The top-line results were driven by a 37.1% increase in daily active uniques (DAUq) to 82.7 million and an 8.1% increase in average revenue per user to $2.94. Reddit defines DAUqs as users the company "can identify with a unique identifier who has visited a page on the Reddit website or opened a Reddit application at least once during a 24-hour period."
On the bottom line, Reddit posted a net loss of $575.1 million, up from a net loss of $60.9 million in the year-ago period, primarily due to charges related to its initial public offering (IPO) in March. Still, the company reported adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of positive $10.0 million vs negative $50.2 million in the year-ago period.
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"It was a strong start to the year and a milestone quarter for Reddit and our communities as we debuted as a public company," Reddit co-founder and CEO Steve Huffman said in a statement. "We see this as the beginning of a new chapter as we work towards building the next generation of Reddit."
The top-line results easily beat analysts' expectations for revenue of $212.8 million, according to CNBC.
Reddit also provided an upbeat outlook for its second quarter. The company is calling for revenue in the range of $240 million to $250 million and adjusted EBITDA in the range of $0 to $15 million.
Wall Street, meanwhile, is anticipating Q2 revenue of $224 million, according to Yahoo Finance.
Is Reddit stock a buy, sell or hold?
Analysts were bullish on Reddit stock going into the earnings release. According to S&P Global Market Intelligence, analysts' average target price for RDDT is $55.07, representing implied upside of about 6% to current levels. Additionally, the consensus recommendation is Buy. However, these estimates could change following Reddit's strong first-quarter performance.
Financial services firm Needham has already reiterated its Buy rating and increased its price target to $63 from $55 in reaction to the company's quarterly results. The new $63 price target represents implied upside of roughly 22% to current levels.
What's more, Needham analyst Laura Martin added the communication services stock to her Conviction List, saying the company's impressive revenue and free cash flow growth growth, as well as its strong margin expansion are "indicative of RDDT's robust business model."
Additionally, Reddit is one of the best sources to train generative AI (artificial intelligence) large language models (LLMs), which should give the company pricing power, Martin says. "[I]ts content library contains 1 billion posts and 16 billion comments collected over the past 18 years, and its platform hosts 1.2 million new posts and 7.5 million new comments every single day," the analyst notes.
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