Reddit Inc Class A (RDDT) AI Stock Analysis

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Reddit Inc Class A

(NYSE:RDDT)

64Neutral

Reddit Inc's overall stock score reflects strong revenue and user growth, a solid balance sheet, and recent profitability achievements. Despite these positives, the stock faces technical weakness, a challenging valuation environment, and some operational hurdles like stock-based compensation. The company's innovative developments and international expansion provide a positive outlook.

Positive Factors

Revenue Growth

Reddit has a lot of advertising initiatives in place to drive revenue growth, including using larger models and more data signals to increase ad relevance.

User Growth

The analysis uncovered two key drivers of user growth: higher frequency among casual US users and greater contribution from international markets.

Negative Factors

Daily User Engagement

Only about 15% of Reddit's monthly users visit daily, which is significantly below the rates on other platforms.

Valuation Risk

Stock is valued at a significant premium to peers and is potentially at higher risk of valuation compression with any macro-economic revenue pressure.

Reddit Inc Class A (RDDT) vs. S&P 500 (SPY)

Market Cap

$18.30B

Dividend YieldN/A

Average Volume (3M)9.66M

Price to Earnings (P/E)―

Beta (1Y)2.54

Revenue Growth61.71%

EPS Growth-442.46%

CountryUS

Employees2,233

SectorGeneral

Sector StrengthN/A

IndustryInternet Content & Information

Share Statistics

EPS (TTM)-3.02

Shares Outstanding125,531,500

10 Day Avg. Volume9,808,461

30 Day Avg. Volume9,657,001

Financial Highlights & Ratios

PEG RatioN/A

Price to Book (P/B)N/A

Price to Sales (P/S)21.99

Price to Cash Flow (P/CF)58.10

P/FCF Ratio58.70

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$167.00

Price Target Upside65.10% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering21

Reddit Inc Class A Business Overview & Revenue Model

Company DescriptionReddit Inc Class A (RDDT) operates a social media platform that allows users to submit content, such as text, links, and images, and engage in discussions. The platform is organized into various 'subreddits' that cater to different interests, topics, and communities. Reddit is known for its diverse user base and active community engagement. It is a significant player in the online social networking and content sharing sector.

How the Company Makes MoneyReddit generates revenue primarily through advertising. The company offers promoted posts and display ads that appear throughout its platform, targeting users based on their interests and behaviors. Additionally, Reddit has a premium membership program called Reddit Premium, which provides subscribers with an ad-free experience and access to exclusive features. The company also benefits from partnerships and collaborations with brands seeking to engage with its vast and diverse user base.

Reddit Inc Class A Financial Statement Overview

Summary

Reddit Inc demonstrates strong revenue growth and a solid balance sheet with minimal leverage. Profitability is improving with recent GAAP profitability, but challenges remain with negative EBIT and net income margins. Cash flow is becoming more robust, indicating better financial stability.

Income Statement

Positive

Reddit Inc has shown impressive revenue growth, with a TTM revenue increase of 61.6% year-over-year. Despite this, profitability remains a challenge as evidenced by negative EBIT and net income margins. The gross profit margin is robust at 90.2% TTM, indicating strong revenue retention after direct costs, but the company needs to improve operational efficiency to enhance overall profitability.

Balance Sheet

Positive

The balance sheet is strong with a low debt-to-equity ratio of 0.01, indicating minimal leverage. The equity ratio is high at 91.2%, reflecting a solid capital structure. However, the company has substantial cash reserves, which could be better utilized to generate returns. The return on equity (ROE) remains negative due to continued net losses.

Cash Flow

Positive

Cash flow is improving with a significant turnaround in operating cash flow, now positive at $222 million TTM. Free cash flow has also shown a positive trend. The operating cash flow to net income ratio is positive, suggesting better cash generation relative to accounting losses. The company has effectively managed capital expenditures to improve free cash flow.

Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
1.30B	804.03M	666.70M	484.92M	228.91M
	Gross Profit
1.18B	693.02M	561.90M	412.35M	173.88M
	EBIT
-560.57M	-140.16M	-172.16M	-127.21M	-62.56M
	EBITDA
-560.57M	-126.46M	-164.16M	-124.40M	-60.62M
	Net Income Common Stockholders
-484.28M	-90.82M	-158.55M	-127.90M	-59.17M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
1.84B	1.21B	1.27B	1.41B	362.64M
	Total Assets
2.34B	1.60B	1.60B	1.65B	524.14M
	Total Debt
26.70M	25.75M	19.49M	13.46M	19.93M
	Net Debt
-535.39M	-375.43M	-416.32M	-1.32B	-92.02M
	Total Liabilities
205.85M	155.90M	125.28M	77.63M	65.01M
	Stockholders Equity
2.13B	1.44B	1.47B	1.57B	459.13M
Cash Flow		Free Cash Flow
215.82M	-84.84M	-100.25M	-132.49M	-64.89M
	Operating Cash Flow
222.07M	-75.11M	-94.02M	-130.19M	-61.84M
	Investing Cash Flow
-440.69M	41.29M	-804.18M	170.68M	81.18M
	Financing Cash Flow
379.54M	-811.00K	-3.78M	1.18B	8.33M

Reddit Inc Class A Technical Analysis

Technical Analysis Sentiment

Negative

Last Price101.15

Price Trends

50DMA

148.37

Negative

100DMA

156.61

Negative

200DMA

114.32

Negative

Market Momentum

MACD

-12.47

Negative

RSI

41.61

Neutral

STOCH

72.98

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For RDDT, the sentiment is Negative. The current price of 101.15 is below the 20-day moving average (MA) of 108.13, below the 50-day MA of 148.37, and below the 200-day MA of 114.32, indicating a bearish trend. The MACD of -12.47 indicates Negative momentum. The RSI at 41.61 is Neutral, neither overbought nor oversold. The STOCH value of 72.98 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for RDDT.

Reddit Inc Class A Risk Analysis

Reddit Inc Class A disclosed 49 risk factors in its most recent earnings report. Reddit Inc Class A reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Reddit Inc Class A Peers Comparison

Overall Rating

UnderperformOutperform

Sector (53)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
TME	80 Outperform	$21.51B	20.43	10.75%	1.09%	0.63%	34.09%
BIDU	76 Outperform	$28.60B	9.02	9.14%	―	-2.60%	16.71%
PINS	76 Outperform	$17.85B	9.75	47.49%	―	19.35%	―
RDDT	64 Neutral	$18.30B	―	-27.12%	―	61.71%	-442.46%
MTCH	62 Neutral	$7.13B	14.09	-865.98%	0.67%	3.41%	-10.41%
SNAP	58 Neutral	$13.50B	―	-28.69%	―	16.40%	48.48%
Sector *	53 Neutral	$3.91B	-17.68	-15.99%	6.44%	25.52%	-80.16%

* General Sector Average

Performance Comparison

RDDT

Reddit Inc Class A

101.15

61.15

152.88%

BIDU

Baidu

85.24

-10.97

-11.40%

SNAP

Snap

7.96

-2.38

-23.02%

TME

Tencent Music Entertainment Group

12.23

1.22

11.08%

PINS

25.85

-6.73

-20.66%

MTCH

Match Group

28.48

-3.10

-9.82%

Reddit Inc Class A Earnings Call Summary

Earnings Call Date: Feb 12, 2025 | % Change Since: -53.27% | Next Earnings Date: May 1, 2025

Earnings Call Sentiment Positive

Reddit had a strong year with significant revenue and user growth, achieving GAAP profitability and expanding its advertising business. Despite some challenges like the Google algorithm change and stock-related charges, the company's innovative product developments and international expansion highlight a positive outlook.

Highlights

Record Revenue and Growth

Reddit surpassed $1 billion in revenue for 2024, marking a 71% year-over-year growth in Q4. Total revenue for the year was $1.3 billion, growing 62% year-over-year.

Strong Advertising Business

Advertising revenue grew 60% year-over-year in Q4 to $395 million. International ad revenue grew 77% year-over-year, the fastest growth in over 2 years.

GAAP Profitability Achieved

For the second consecutive quarter, Reddit was GAAP profitable with a net income of $71 million in Q4, and adjusted EBITDA reached $154 million.

Impressive User Growth

Daily active users (DAUs) reached 101.7 million, marking a 39% year-over-year increase, with international growth leading at 46%.

Innovative Product Developments

Introduction of Reddit Answers, an AI-powered search tool, showed promise in providing curated summaries of community discussions.

Lowlights

Impact of Google Algorithm Change

Late in Q4, Reddit experienced traffic volatility due to a periodic Google Search algorithm change, affecting logged-out users.

Significant Stock-Based Compensation Charges

A $595 million accounting charge related to stock-based compensation was recorded in Q1 2024, contributing to a major loss for the year.

Company Guidance

During Reddit's fourth quarter and full year 2024 earnings call, the company highlighted several key metrics and achievements. Reddit surpassed $1 billion in revenue for the year, driven by a 71% year-over-year increase in total revenue during Q4, amounting to $428 million. The platform's daily active users (DAUs) grew to 101.7 million, marking a 39% year-over-year increase, with international growth leading at 46%. Logged-in users rose by 27%, maintaining a steady upward trend for the past two years. Reddit also achieved GAAP profitability for the second consecutive quarter, with adjusted EBITDA reaching $154 million and a net income of $71 million. Advertising revenue grew by 60% year-over-year to $395 million in Q4, with international ad revenue experiencing a 77% year-over-year increase. The company emphasized its focus on international expansion and the rollout of machine translation in eight languages to support global growth. Reddit's advertising business is diversifying, with 10 of its top 15 verticals growing over 50% year-over-year. The platform's search capabilities are improving, with the launch of Reddit Answers, an AI-powered search tool providing curated summaries of community discussions. Reddit's mission has been updated to empower communities and make their knowledge accessible to all, highlighting the importance of personalized and contextual ad experiences.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.