Reddit's (RDDT) Rollercoaster Ride Enters Buy-the-Dip Territory
Reddit Inc. (RDDT) stock has been on a wild ride since its IPO last March, soaring from $34 to a dizzying $230 before pulling back at $103 today. The bullish moment has been fueled by Reddit's jaw-dropping growth, tempered by whispers of doubt about whether it can keep the momentum going. I'm betting it can. With its unique platform and skyrocketing metrics in both the top and bottom lines, I see Reddit's dip as a rare chance to buy into a social media giant poised for a big rebound.
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Surging User Engagement Fuels the Fire
Reddit's strength lies in its vibrant, sticky community. In Q1, daily active users (DAUs) on the platform hit 108.1 million, a 31% year-over-year increase, while weekly users totaled 401 million. Millions of people are now exploring all kinds of subreddits for everything from niche hobbies to breaking news. I would argue that, along with X, Reddit is one of the best places to go to feel the pulse of what the 'conversation' is for any given topic.
In the meantime, Reddit's 'Reddit Answers' feature, now at 1 million weekly users, has made it easier for people to find solutions, boosting engagement and keeping users hooked longer. This should prove to be a strong short to medium-term catalyst for Reddit to sustain sticky user metrics. And this stickiness translates into real staying power.
The platform's ability to connect users over hyper-specific interests creates a network effect that's hard to replicate. As more users join, the content becomes richer, attracting even more people. It's a virtuous cycle that drives growth and makes it a magnet for advertisers seeking to tap into passionate, engaged audiences.
Advertising Revenue Takes Flight
Speaking of Reddit's advertising business, it is firing on all cylinders, with Q1 ad revenue soaring 61% to $359 million. I really like how Reddit's ads are sneaky but effective. You're deep in a thread about camping gear, and suddenly there's a sponsored post for a tent that fits the conversation perfectly.
That's a superb delivery system that has advertisers lining up. Notably, over 50% more advertisers joined the platform year-over-year, indicating that brands view Reddit as a valuable channel for delivering high return on ad spend (ROAS).
The Hidden Gem of Data Licensing
Reddit's data has emerged as a highly valuable asset, and the company is beginning to effectively monetize it. In the last quarter, revenue from data licensing and related sources rose by 66% to $34 million. This growth is largely driven by the increasing demand for high-quality, user-generated content to train artificial intelligence models. Reddit's extensive and diverse dataset, covering a wide range of topics, makes it particularly well-suited for this purpose.
Additionally, Reddit's partnership with Google (GOOGL), aimed at enhancing the platform's visibility in search results, has significantly increased its online presence. As a result, Reddit content is now more prominently featured in searches ranging from consumer advice to home repair solutions.
Looking ahead, this revenue stream is likely to become a more significant part of Reddit's overall business. As AI technologies continue to evolve, the value of Reddit's comprehensive dataset is expected to grow. The interest shown by companies like Google underscores just how compelling and insightful this data can be—it provides a unique window into the breadth of human curiosity and conversation.
RDDT Remains Pricey but Poised to Deliver
Following a significant decline from its $230 peak, the stock now trades at approximately 11x sales and 81x earnings per share (EPS), based on 2025 consensus estimates. While these valuation multiples may appear elevated, they are more justifiable than they seem.
Reddit's revenue is expected to grow by 42% this year, reaching record levels as the company anticipates its first profitable year. Moreover, analysts forecast an 83% increase in EPS for fiscal year 2026—from $1.24 in FY2025—highlighting Reddit's rapid scaling and improving profit margins.
Is Reddit a Buy, Sell, or Hold?
Following the stock's extended sell-off, Wall Street now seems rather optimistic about Reddit. RDDT stock features a Moderate Buy consensus rating, with 12 analysts currently bullish, eight neutral, and just one bearish. Reddit's average stock price target of $149.35 indicates a significant upside potential of almost 37% over the coming twelve months.
A Bet on Reddit's Bright Future
Reddit's evolution from a grassroots online forum to a publicly traded company with a $19 billion market capitalization is truly impressive. The recent pullback to $103 appears to be more of a temporary pause than a long-term setback. Backed by strong user growth, a robust advertising business, and an increasingly valuable data licensing segment, Reddit is positioning itself for long-term success.
My positive outlook is rooted in the fact that this is more than just a traditional social media investment, though that's a space I continue to believe in, as reflected in my conviction in Meta Platforms (META). Reddit represents a broader opportunity centered on community engagement, data monetization, and platform innovation. In my view, the current dip presents a compelling entry point ahead of what could be the company's next phase of growth.
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