Reddit (NYSE: RDDT) recently announced its Q1 earnings, reporting a profit of $0.13 per share on revenue of $392 million. This exceeded market expectations of $0.01 per share and $370 million in revenue. Moreover, its daily active user (DAU) count exceeded the estimates, leading to a sharp rise in RDDT stock during after-hours trading. Thanks to both changes in Google search algorithms and internal site enhancements, Reddit has experienced a significant increase in user activity. Separately, see 1 Metric More Scary Than U.S. Trade Deficit Or Debt.
Since its IPO at $34 per share in March last year, RDDT stock has surged past $225 in February this year, before seeing a sharp pullback to around $125 now. Reddit’s strong user engagement has contributed to its stock’s impressive performance since its IPO. However, if you prefer a less volatile investment alternative, consider the High Quality Portfolio, which has consistently outpaced the S&P 500 and has delivered over 91% returns since inception.
Reddit’s Q1 revenue of $392 million reflected an impressive 61% year-over-year increase, driven by user growth and higher ARPU. DAUs increased by 31% year-over-year to 108.1 million and the company also saw its ARPU climb by 23% to $3.63 in Q1. Additionally, Reddit’s adjusted EBITDA margin increased seven-fold to 29.4%, up from 4.1% in the previous year’s quarter. Higher revenue and margin expansion resulted in earnings of $0.13 per share, compared to a loss of $8.19 per share in the same period last year.
Looking ahead, Reddit expects Q2’25 revenue of $420 million and an adjusted EBITDA of $120 million at the mid-point of its guidance, surpassing the street’s $396 million top-line estimate.
RDDT stock has shown notable volatility since its debut. In contrast, the Trefis High-Quality Portfolio, which consists of 30 stocks, is significantly more stable. It has also comfortably outperformed the S&P 500 over the past four years. Why? This portfolio comprises stocks that have historically provided stronger returns with lower risk compared to the broader index, offering a more predictable performance, as evident in HQ Portfolio performance metrics.
Given the current economic uncertainty surrounding tariffs and ongoing trade disputes, could RDDT see higher levels? We think so. With sales growing 62% in 2024 and projections indicating a CAGR exceeding 30% over the next three years, Reddit’s (RDDT) current trading multiple of 15 times trailing revenue appears justified despite its premium valuation. This multiple actually represents a discount compared to its 18x P/S ratio seen earlier in 2024 and the 22x multiple reached in February.
Since Reddit only went public last year, historical valuation benchmarks are unavailable for comparison. However, the company’s improving profitability suggests potential for accelerated bottom-line growth moving forward. While the stock has already risen following recent earnings, it may still present an opportunity for long-term investors seeking robust returns.
Read the full article here
