Reddit’s Impressive IPO Journey: What’s Next for Investors?

The IPO market of 2024 has seen many companies struggling to capture attention. Investing in initial public offerings can be risky, but among the 186 new entrants this year, 14 have experienced over a 100% increase in their stock prices. One of the standout performers is a familiar name: Reddit.

Since its debut at $34 in March, shares of Reddit (NYSE: RDDT) have tripled in value. With a remarkable 232% climb this year, it ranks as the third largest gainer among new IPOs.

Reddit’s recent growth and healthy financial metrics raise the question: Could it double its value again in 2025? Let’s explore the reasons why analysts are optimistic about the social platform’s continued success.

Making a Strong Impression

Reddit has quickly built a positive reputation since going public. In May, the company reported impressive financial results for its first quarter. The positive trend continued with better-than-expected results in the second quarter, and last week’s third-quarter earnings exceeded forecasts once again.

That makes a perfect three-for-three in quarterly earnings since going public, showcasing significant growth. Just under eight months ago, Reddit faced challenges with a declining growth rate, dropping from 112% revenue growth in 2021 to just 21% last year. At that time, Reddit was not consistently profitable outside of its robust fourth quarter.

Now, Reddit’s performance appears to be reversing that trend. In its first three quarters of this year, revenue growth rates were impressive at 48%, 54%, and 68%, respectively. Such acceleration is often seen as a promising indicator for new public companies, increasing their potential valuation.

In a notable turn, Reddit reported its first-ever profit in the third quarter, silencing previous doubts from analysts who initially predicted a delay in profitability until 2026. Now, expectations have adjusted to foresee profitability as early as next year.

Image source: Getty Images.

Avoiding the Typical Second-Year Struggles

When Reddit went public at $34 in March, some investors felt the price was steep. However, at its current price of $109, it can still be seen as reflecting considerable untapped growth potential.

Reddit’s platform has seen a surge in popularity, boasting 97.2 million daily active users as of September—an impressive 47% increase over the past year. Revenue growth is even more remarkable, reflecting Reddit’s effective monetization strategy. Advertising accounts for around 90% of its business, with advertisers keen to engage with Reddit’s hard-to-reach, active audience.

Yet, there is still room to grow. Although over half of Reddit’s users are outside the U.S., international revenue constitutes only 17% of its total. For the third quarter, average revenue for U.S. daily active users stood at $5.88, significantly higher than the $1.32 generated from international users. While global revenue may not catch up to domestic metrics, there remains a substantial opportunity for Reddit to enhance its appeal to advertisers.

With its unique structure housing over 100,000 active communities, Reddit attracts users who may not engage with other social platforms. While challenges will arise, the current momentum is favorable for Reddit, making analysts believe that strong performance will likely continue into 2025.

Don’t Miss Your Opportunity

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See 3 “Double Down” stocks »

*Stock Advisor returns as of November 4, 2024

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.