Reddit’s RDDT Stock Surges: Key Updates and Future Projections

Reddit RDDT shares have risen 25.7% over the past month, significantly outperforming the Zacks Computer & Technology sector, which increased by only 4% during the same period.

Additionally, RDDT has surpassed the performance of the Zacks Internet Software industry, as well as competitors like Snap (SNAP) and Meta Platforms (META), with Snap gaining 8% and Meta up 9.1%. The broader industry saw a 10% rise.

This impressive growth is largely due to Reddit’s investment in content and artificial intelligence (AI), which has boosted user engagement and attracted new users to the platform.

Year-to-Date Performance Overview

Image Source: Zacks Investment Research

Introducing AI-Powered Reddit Answers

Reddit is launching a new AI-powered chatbot called Reddit Answers, which aims to improve user searches and engagement. This feature is currently being tested and will offer AI-generated summaries of relevant discussions from real conversations on the platform, providing users with quick information and insights.

Reddit Answers will simplify searching by displaying quick answers and enabling users to ask follow-up questions. Initially, the feature will be available in English to a select group of users in the U.S., with plans to expand to more languages and regions later on. This tool is powered by AI technologies from Reddit, Alphabet (GOOGL), and OpenAI, and it follows a previous collaboration between Reddit and OpenAI for ChatGPT.

A Growing Client Base Enhances RDDT’s Growth Prospects

Reddit’s expanding list of partnerships strengthens its competitive edge. The collaboration with Alphabet enhances content discovery and community engagement, thanks to access to Reddit’s Data API, which supports Google products and AI initiatives.

Moreover, Reddit’s partnership with Integral Ad Science (IAS) reassures advertisers about scaling their campaigns on the platform through IAS’s AI-driven Total Media Quality product suite. This collaboration will offer valuable transparency and measurement tools, ensuring brand safety while improving engagement across Reddit’s vast communities.

User Engagement and Advertising Growth Propel RDDT

Reddit’s efforts to diversify its advertising solutions have proven crucial for its growth. In the third quarter of 2024, advertising revenue surged 56% year-over-year to $315.1 million, fueled by higher ad impressions and improved placement strategies.

A 40% increase in conversation pageviews compared to the previous year showcases the rise in user engagement. Further strengthening its advertising capabilities, Reddit introduced enhanced ad products in the third quarter like conversation ads, auto bidding, and CAPI (Conversions API), which all contributed to higher conversion rates. The advertising sector also thrived, particularly in industries such as automotive, consumer goods, and pharmaceuticals.

This boost in advertising performance has directly impacted Reddit’s user activity, with daily active users (DAUs) rising by 47% year-over-year to over 97 million and crossing the 100 million DAU milestone for the first time during the third quarter.

Promising Earnings Estimates for RDDT

Looking ahead to the fourth quarter of 2024, RDDT anticipates revenues between $385 million and $400 million, suggesting substantial growth of 54%-60% (57% at the midpoint) fueled by these positive developments.

The Zacks Consensus Estimate for fourth-quarter revenues stands at $404.97 million, while the estimate for earnings per share is 23 cents, reflecting a 21% increase in the last month.

Reddit Inc. Price and Consensus Analysis

Reddit Inc. price-consensus-chart | Reddit Inc. Quote

Check Zacks for the latest EPS estimates and surprises on their Earnings Calendar.

Should Investors Consider RDDT Stock?

RDDT stock currently has a Value Score of F, indicating it may be overvalued. Its trailing Price/Book ratio stands at 14.73X, compared to its median of 12.53X and the broader Zacks Computer & Technology sector at 10.55X.

Despite the high valuation, RDDT’s rapid user growth, improved advertising products, and expanding partnerships suggest a strong future. Consequently, the elevated valuation may be warranted.

Currently, RDDT carries a Zacks Rank #2 (Buy) along with a Growth Score of B, indicating a robust investment opportunity per Zacks methodologies. For further insights, view today’s Zacks #1 Rank (Strong Buy) stocks here.

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