Reddit's (RDDT 3.70%) stock has struggled this year, even as the online discussion platform sees soaring revenue and surging profitability. The stock wasn't able to gain any traction after a strong fourth-quarter earnings report and outlook, and is now down more than 35% year to date, as of this writing.
Let's take a look at the company's recent earnings report and prospects to see whether investors should buy the dip.
NYSE: RDDT
Key Data Points
Revenue continues to surge
Reddit has been seeing strong revenue growth, and that continued in Q4, with revenue soaring 70% year over year to $726 million. That crushed the $665 million in revenue that analysts were expecting, as compiled by LSEG.
Ad revenue surged 75% to $690 million, with other revenue up 8% to $36 million. Its ad revenue growth came from a combination of increased impressions and pricing. Meanwhile, it just launched its new AI-powered automated tool, which in early tests is already showing improvements in conversions.
The company also continues to do a nice job of adding new users to its platform, with daily active users rising by 19% to 121.4 million, while weekly users increased by 24% to 471.6 million. Analysts were looking for 120 million daily active users. Average revenue per user (ARPU), meanwhile, surged 42% to $5.98.
Looking at profitability, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) more than doubled from $154 million a year ago to $327 million. Earnings per share (EPS), meanwhile, surged from $0.36 a year earlier to $1.24. That easily topped the $0.94 consensus.
Moving forward, the company projects Q1 revenue to be between $595 million and $605 million, representing 52% to 54% growth. It is forecasting adjusted EBITDA in a range of $210 million to $220 million, up from $115.3 million a year ago. The company also announced a $1 billion stock buyback program.
Image source: Getty Images.
Is it time to buy Reddit stock?
Reddit has been showing outstanding revenue and profitability growth, and it is now just starting to turn to the AI tools that have helped many other social media platforms power their revenue growth. The company is trying to create a more personalized user experience and improve its search features, which can keep users on its platform longer and lead to more ad opportunities. At the same time, the recent launch of Reddit Max campaigns can help lead to higher ad prices as it helps increase conversions and lower cost per action.
Looking at valuation, the stock trades at a forward price-to-earnings ratio (P/E) of just over 23 times 2025 analyst estimates. Given its growth, future opportunities, and valuation, I'd be a buyer of the stock on this recent weakness, as Reddit looks to become an AI-focused company.
