Reddit's (RDDT 6.72%) stock price has more than quadrupled since it went public eight months ago at $34 per share. The social media company dazzled investors with its rapid growth in users and revenue, and it turned firmly profitable in its latest quarter.
But even after those massive gains, Reddit's market cap of $28 billion still makes it a tiny fish in the social media market compared to Meta Platforms (META 1.06%), which is worth $1.4 trillion. Could Reddit close that gap and eclipse Meta by 2040?
Image source: Getty Images.
How fast has Reddit been growing?
Reddit isn't a traditional social media platform like Meta's Facebook and Instagram. It's more of a news aggregator and user-powered discussion forum, and its usage often fluctuates with current events.
Many of Reddit's daily active unique users (DAUq) simply visit the site without logging in, posting their own content, or engaging in conversations with other users. Those logged-out users are generally harder to monetize with ads than logged-in users.
NYSE: RDDT
Key Data Points
Therefore, Reddit's long-term goal is to convert more of its logged-out users to logged-in ones as it consistently grows its average revenue per user (ARPU). Here's how that strategy has fared in the three quarters since its public debut.
|
Metric |
Q1 2024 |
Q2 2024 |
Q3 2024 |
|---|---|---|---|
|
Total DAUq |
82.7 million |
91.2 million |
97.2 million |
|
Percentage of logged-in DAUq |
37% |
46% |
45% |
|
Total DAUq growth (YOY) |
48% |
51% |
47% |
|
ARPU growth (YOY) |
8% |
2% |
14% |
|
Revenue growth (YOY) |
48% |
54% |
68% |
Data source: Reddit. YOY = Year over year.
In 2024, Reddit's DAUq growth accelerated from its 27% DAUq growth in 2023 as major news events -- including geopolitical conflicts, hurricanes, and the U.S. elections -- drove more users to its discussion forums. Its percentage of logged-in users rose, and its ARPU growth accelerated again.
Reddit's gross adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and net profit margins all expanded over the past year as its topline growth accelerated. That's why it finally turned profitable for the first time in the third quarter.
|
Metric |
Q1 2024 |
Q2 2024 |
Q3 2024 |
|---|---|---|---|
|
Gross margin |
88.6% |
89.5% |
90.1% |
|
Adjusted EBITDA margin |
4.1% |
14% |
27% |
|
Net income margin |
(236.7%) |
(3.6%) |
8.6% |
Data source: Reddit.
For the full year, Reddit expects its revenue to rise 56%-58% with a midpoint adjusted EBITDA margin of 21%. From 2023 to 2026, analysts expect its revenue to grow at a compound annual growth rate (CAGR) of 36%. They expect its adjusted EBITDA to rise at a CAGR of 54% from 2024 to 2026.
But could it grow as quickly as Meta?
Reddit's growth rates are stunning, but it will need to maintain that momentum for a long time to catch up to Meta, which served 3.29 billion daily active people across its entire family of apps (Facebook, Instagram, Messenger, and WhatsApp) in its latest quarter.
Reddit's 97.2 million daily unique active users in its latest quarter would make it roughly comparable to a pre-IPO Facebook in the third quarter of 2008, when the future social media king had only 100 million monthly active users. Reddit's $1.3 billion in projected revenue this year would also make it smaller than Facebook in 2010 when its revenue rose 154% to $1.97 billion. From 2010 to 2023, Facebook (which rebranded itself as Meta Platforms in 2021) grew its annual revenue at a CAGR of 38% to $134.9 billion.
It's tempting to think that Reddit might replicate Meta's growth trajectory over the next two decades, but a few challenges stand in its way. The social media market is much more saturated than it was a decade ago, and Reddit is growing at a slower clip than Facebook when it was roughly the same size. Reddit's growth also ebbs and flows with news cycles, so its growth rates aren't as predictable as Meta's. While Meta can keep growing as long as its users keep connecting with each other and sharing more content, Reddit's high ratio of logged-out users indicates its platform isn't as sticky as Facebook or Instagram.
Reddit probably won't be more valuable than Meta by 2040
Assuming Reddit matches analysts' estimates through 2026, continues to grow its revenue at a respectable CAGR of 25% from 2026 to 2040, and trades at a premium 15 times sales, its market cap could potentially swell from $28 billion to $260 billion by the final year.
But that would still be about a fifth of Meta's current market cap. As for Meta, if it grows its top line at a modest CAGR of 15% from 2023 to 2040 and also trades at 10 times sales by the last year, its market cap could soar to a whopping $14.5 trillion. It could achieve that growth by finding new ways to monetize its massive user base, expanding its virtual reality and augmented reality businesses, and entering new markets.
That's all speculation for now, but Reddit probably won't come anywhere close to matching Meta's market cap by 2040. That said, it could still generate bigger long-term gains than Meta as it continues to lock more users into its news- and discussion-driven flywheel.
