Why Reddit Stock's an Even Bigger Buy After Earnings
Reddit stock is soaring Wednesday after the social media firm's blowout earnings report and upbeat guidance and analysts are rushing to raise price targets.
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Reddit (RDDT) stock is soaring in Wednesday's session, up more than 40% at last check, after the social media platform beat top- and bottom-line expectations for its third quarter and issued a strong outlook on the fourth quarter.
In the three months ended September 30, Reddit's revenue increased 67.9% year over year to $348.4 million, driven by a 47.3% surge in daily active uniques to an all-time high 97.2 million and a 14% rise in average revenue per unique to $3.58. RDDT defines daily active uniques 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."
The company also swung to a net profit of 16 cents per share from a loss of 13 cents per share in the year-ago period.
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"It was another strong quarter for Reddit and our communities as we achieved important milestones, including new levels of user traffic, revenue growth, and profitability," said Reddit CEO Steve Huffman in a statement. "Reddit continues to be one of the most visited and trusted sites in the world with opportunities available to us that aren't available to most companies."
The results cruised past analysts' expectations. Wall Street was anticipating revenue of $312.8 million and a net loss of 7 cents per share, according to Yahoo Finance.
For the third quarter, Reddit anticipates revenue in the range of $385 million to $400 million, well ahead of analysts' expectations for revenue of $357.9 million.
"In the near term, historically, Q4 has been our largest revenue quarter of the year," said Reddit Chief Financial Officer Andrew Vallero on the company's conference call. "So we're focused on execution. Medium and longer term, Reddit is scaling profitably. And financially, we are focused on turning differentiated revenue growth, high margins and low capital expenditures into meaningful cash flow generation."
Is Reddit stock a buy, sell or hold?
Reddit has been tearing up the price charts since going public in March, rising more than 125% in that time. Unsurprisingly, Wall Street is bullish on the communication services 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 $93.88, representing a discount to current levels. Analysts are likely to increase their price targets following the blowout earnings results.
Indeed, financial services firm Needham raised its price target on RDDT stock to $120 from $85 while maintaining its Buy rating.
"RDDT remains our Conviction List name," says Needham analyst Laura Martin. The large-cap stock's "investment positives include revenue upside from data licensing, social listening and commerce revenue streams," she adds, while noting that Reddit "offers an unduplicated, authentic, and attentive audience with attractive demographics for advertisers."
By 2027, Martin and her team expect Reddit's advertising global total addressable market will be approximately $1.4 trillion.
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