Reddit (NYSE: RDDT) entered the public arena with fireworks, debuting at $34 per share, soaring to $74.90, then settling back around $46. After this dramatic entrance, where might Reddit’s stock trajectory lead in the next half-decade?
The Growth Spurt: Reddit’s Rise Amidst Challenges
Amidst a backdrop of increasing revenue and shrinking losses, Reddit posted a 21% revenue growth in 2023 to $804 million while narrowing its net loss from $159 million to $91 million. Daily unique user numbers also climbed by 27% year-over-year, yet only half of these users were engaged with the platform through logging in. Reddit aims to boost this ratio, but acknowledges an uphill battle as usage trends tied to external events impact its growth rates.
The company’s struggle to increase its average revenue per user (ARPU) in the U.S. poses a concern, with a decline in the fourth quarter dampening overall ARPU growth. This poses a challenge, as U.S. users generate significantly higher revenue than their overseas counterparts.
The Road Ahead: Potential and Pitfalls
Despite hurdles, Reddit sets an ambitious goal of achieving breakeven adjusted EBITDA in 2024 while aiming for a 20% revenue growth. With a reasonable valuation relative to competitors like Meta Platforms and Pinterest, Reddit’s stock looks promising if it can maintain a 20% compound annual growth rate (CAGR). Hitting this target could catapult Reddit’s revenue to $2 billion by 2028, potentially doubling its market cap.
However, challenges loom large. Reddit faces threats from AI platforms siphoning off users and operational strains due to its reliance on unpaid moderators. Such issues cast doubt on Reddit’s ability to sustain a 20% growth rate. A more conservative 15% CAGR could still see revenue near $1.6 billion by 2028, albeit with a reduced valuation.
The Crystal Ball: Reddit’s Fortunes in 2028
The future of Reddit’s stock remains uncertain, with early performance metrics determining the path ahead. Industry analysts forecast a 25% CAGR in revenue from 2023 to 2026, but this consensus could waver as more experts weigh in. Amidst struggles to solidify user growth and monetization strategies, Reddit risks falling behind stalwarts like Meta Platforms and Pinterest, testing the resilience of its business model.
Should Reddit Be in Your Investment Basket?
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Randi Zuckerberg, former Facebook insider and sister to Meta Platforms CEO Mark Zuckerberg, sits on The Motley Fool’s board of directors. Leo Sun holds positions in Meta Platforms. The Motley Fool maintains positions in and recommends Meta Platforms and Pinterest. The Motley Fool follows a disclosure policy.
The thoughts expressed here solely belong to the author and may not align with those of Nasdaq, Inc.
