Reddit’s Q4 Earnings Report: A Mixed Bag Sparks Investor Interest
After a recent drop in share prices, Reddit (NYSE: RDDT) remains up 20% since its March 2024 IPO, highlighting continued enthusiasm from investors. Since debuting at $34, the stock has increased more than fivefold in under a year.
Reddit brands itself as “a global, digital city” for people to connect, share ideas, and explore interests. However, it’s largely recognized as a platform for anonymous discussions on a wide range of topics.
Start Your Mornings Smarter! Get daily market updates with Breakfast news in your inbox. Sign Up For Free »
Let’s dive into the company’s latest earnings report and future outlook to assess if this is a good time to buy the stock.
Strong Revenue Growth
Reddit reported a remarkable 71% increase in Q4 revenue, totaling $427.7 million. Advertising revenue surged 60% to $394.5 million, supplemented by an additional $33.2 million from other sources. The company’s success in ad revenue largely stemmed from increased impressions and stable pricing, with international markets contributing a significant 76% growth.
The company has also expanded its user base substantially. Daily users climbed 39% to 102 million, and weekly users grew by 42% to 379 million. However, daily user figures fell slightly short of the 103 million anticipated by analysts from FactSet.
Both logged-in and logged-out user statistics showed positive trends, with average revenue per user (ARPU) rising 23% to $4.21.
Investments in ad technology and artificial intelligence (AI) have been priorities for Reddit. The introduction of conversation ads and new Ask Me Anything (AMA) ads is designed to enhance ad performance, leveraging community features. New tools like Trends allow advertisers to track relevant keywords, facilitating better audience engagement. AI and automation are used to optimize campaign efficiency.
Reddit is also rolling out a new AI feature called Reddit Answers, assisting users with a variety of questions, from vacation planning to cooking advice. The company aims to enhance its search capabilities through AI and machine learning for language translation. France is the first country to benefit from machine learning translation, which has seen faster growth than other focused markets. The company is set to expand this technology to six more languages throughout the year.
Despite a Google (part of Alphabet) search algorithm change affecting site traffic in late Q4, there has been a recovery in search traffic during Q1. The volume of users searching for “reddit” has increased, indicating a strong interest in its content.
Regarding profitability, adjusted EBITDA jumped from $23 million a year ago to $154 million, with earnings per share (EPS) at $0.36. Reddit noted that it would have reported an annual EPS profit if not for a one-time charge related to stock-based compensation in Q1.
Looking ahead, the company projects Q1 revenue between $360 million and $370 million, which signals 48% to 52% growth. Adjusted EBITDA is forecasted to fall between $80 million and $90 million, representing an impressive expected growth of 700% to 800%.
Image source: Getty Images.
Is Now the Time to Buy?
Reddit’s growth story, given its rising revenue, user engagement, and ARPU, is promising. Its introduction of advanced adtech and AI strategies seems likely to enhance revenue. The minor miss in daily active users appears related to the Google algorithm change but seems to be a transient issue.
With approximately 50% of its user base international, compared to over 80% for competitors, Reddit sees a substantial growth opportunity. Its language translation efforts should further attract international users.
In terms of valuation, the stock is trading at a forward price-to-earnings (P/E) ratio of 66 based on 2025 analyst forecasts. It has an enterprise value (EV)-to-EBITDA multiple of 58. Given projected high-20% revenue growth over the next few years and increasing profitability metrics, this valuation appears justifiable.
RDDT PE Ratio (Forward) data by YCharts
Ultimately, if Reddit maintains its impressive user growth and capitalizes on international markets, the stock may present a solid opportunity for investors considering a buy after recent price dips.
Considering an Investment in Reddit?
Before making any investment in Reddit, reflect on this:
The Motley Fool Stock Advisor team recently highlighted their picks for the 10 best stocks to consider now—Reddit wasn’t one of them. The selected stocks have the potential for significant returns in the future.
For instance, if you invested $1,000 in Nvidia when it was recommended on April 15, 2005, you’d now have $823,858!*
Stock Advisor offers investors strategic guidance for building a portfolio, regular updates from analysts, and two new stock picks every month. The service has significantly outperformed the S&P 500 since its launch in 2002*.
Learn more »
*Stock Advisor returns as of February 21, 2025
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and FactSet Research Systems. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
