3 Reasons to Buy Reddit Stock in August
Reddit's stock has plummeted 21% after a poorly received financial update, but the company's fundamentals have outpaced the stock's growth. The company's revenue has increased by 20% in 2023 and 60% for eight consecutive quarters, with its growth rate tripling. Its actual…
Intelligence analysis by Llama
Despite a recent decline, Reddit's fundamentals have outpaced its stock growth. The company's revenue has increased significantly, and its growth rate has tripled. Its actual revenue has more than tripled, and its bottom line has become a cash cow with scalability and new revenue streams.
Imagine you're at a big party with lots of people. Reddit is like the party, and the people are the users. The party is growing really fast, and more and more people are coming. The party is also making a lot of money, and it's becoming a cash cow. Some people are worried that the party is going to stop growing, but it's still a great place to be. The stock price is low right now, so it might be a good time to buy in.
Analysis
A $60B Vote of Confidence
Reddit's stock has never been as cheap as it is right now. The company went public at $34 in early 2024, and even after its recent swoon, the shares still closed just above $140 on Friday. The short story is that the company's fundamentals have outpaced the stock's quadrupling through its first 28 months of trading. Its business model has been upgraded in a few ways. Reddit increased its top line by 20% in 2023 as it filed to go public, and now it has posted revenue growth north of 60% for eight consecutive quarters. Its growth rate has tripled. Its actual revenue has more than tripled. This great growth story gets even better on the bottom line. Reddit wasn't profitable when it went public in the spring of 2024. It has become a cash cow with scalability and new revenue streams, delivering explosive earnings results. Revenue rose 61% in Reddit's latest quarter. Net income, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), and free cash flow more than doubled.
Many Paths to Victory
The stock's historically cheap valuation isn't the only bullish argument worth making. Take a look at how the model has evolved over time. A few years ago, the forum seemed impossible to monetize. The moderators and users who generate valuable content would push back when Reddit tried to ramp up advertising, but revenue has jumped tenfold over the past five years. It's not just advertising that's getting the job done. Reddit now also has a premium tier through which folks can pay $5.99 a month for an ad-free experience and other upgrades. It also has data licensing deals with a couple of major AI platforms to help train and ground their models. The revenue streams outside of advertising currently account for just 5% of its business, but that could widen over time. Reddit's also a global phenomenon, consumed largely by folks outside the U.S., with international users accounting for 59% of the daily active uniques. But despite the massive worldwide audience, less than 21% of its revenue is currently being generated by international users. Average revenue per user overseas will understandably be lower than its stateside audience, but the gap could narrow over time.
The Knocks Are Overblown
Reddit posted 'beat and raise' numbers, but the stock was beaten and razed. It wasn't a perfect report, but with the stock already trading lower in recent months, it didn't have to be. Reddit announced that it will stop reporting the breakdown of logged-in and logged-out daily active users starting in the current quarter. Investors don't take kindly to seeing a metric measuring a company's success go away, but there will continue to be plenty of granularity on usage and performance. There was a slight sequential dip in U.S. daily active uniques, prompting some analysts to worry about search-referral headwinds, but the overall business continues to grow at a blistering pace. Even Reddit's guidance for the new quarter, calling for 47% to 49% growth, is higher than the 43% to 45% it was targeting for the second quarter three months ago. It still managed to exceed 60% top-line growth. As worrywarts make mountains out of small revenue-mix molehills like AI data licensing renewals, Reddit's overall business continues to thrive. You don't bet against a company that's winning even when the stock chart is losing.
Key points
- Reddit's stock has plummeted 21% after a poorly received financial update.
- The company's fundamentals have outpaced its stock growth.
- Reddit's revenue has increased significantly, with a growth rate that has tripled.
- The company's actual revenue has more than tripled, and its bottom line has become a cash cow with scalability and new revenue streams.
- Reddit's guidance for the new quarter is higher than expected, but there are still concerns about search-referral headwinds and revenue-mix molehills.
If Reddit's growth continues, the company's stock price could increase significantly. The company's fundamentals have outpaced its stock growth, and its revenue has increased significantly. The company's scalability and new revenue streams make it a cash cow with explosive earnings results.
If Reddit's growth slows down, the company's stock price could decrease. The company's guidance for the new quarter is higher than expected, but there are still concerns about search-referral headwinds and revenue-mix molehills.
