Reddit Stock Update: What to Expect After the 15% Fall?

Reddit (NYSE: RDDT) recently released its Q4 results with earnings of $0.36 per share on sales of $428 million, faring better than the street estimates of $0.25 and $405 million, respectively. However, its daily active users (DAUs) were below the expectations, and RDDT stock dropped 15% in after market hours. The company attributed the slower than anticipated DAU growth to a volatility arising from a change in the Google algorithm.

Since its listing at $34 per share in March of last year, RDDT shares have skyrocketed to levels of over $215 earlier this week, dramatically outperforming the S&P 500’s more modest 16% gain during the same period. Reddit’s strong user engagement has boded well for its stock lately. But, if you want an upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

Reddit’s revenue of $428 million in Q4 reflected a solid 71% y-o-y growth, driven by growth in users as well as ARPU. Reddit’s DAUs grew 39% y-o-y to 101.7 million, falling short of the 103.1 million consensus estimate. The company also saw its ARPU rise by 23% to $4.21 in Q4. Reddit’s adjusted EBITDA margin surged 4-fold to 36.1%, versus 9.3% in the prior-year quarter. Higher revenues and margin expansion resulted in earnings of $0.36 per share, compared to a breakeven per share during the same period last year. Looking forward, Reddit expects its sales to be $365 million and adjusted EBITDA of $85 million in Q1’25, at the mid-point of the provided range. This fares better than the $358 million figure per the street estimates.

Looking at RDDT stock, it surely has been volatile since its listing. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last four-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment around rate cuts and ongoing trade wars, could RDDT continue its strong rally? Given that the stock was listed last year, we don’t have historical data to ascertain its valuation multiple. At its current levels of around $190, RDDT stock trades at 21x trailing revenues. Given that the company saw its sales rise 62% in 2024, and it is expected to grow its revenue at a CAGR of over 30% in the next three years, we think a high valuation multiple seems justified. Moreover, the company’s profitability is improving, and the bottom-line growth is expected to be even more profound. The current after-hours trading indicates RDDT shares are retreating by 15% to below $190, presenting a potential buying opportunity for investors seeking strong long-term returns, in our view.

While RDDT stock is trending lower, it is helpful to see how some of its peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 2/13/2025
[2] Cumulative total returns since the end of 2016

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