Reddit Stock At $200: Is It Time To Buy Or Sell?

Reddit (NYSE: RDDT) recently announced its Q4 earnings, reporting a profit of $0.36 per share on revenue of $428 million. This exceeded market expectations of $0.25 per share and $405 million in revenue. However, its daily active user (DAU) count fell short of estimates, leading to a sharp drop in RDDT stock during after-hours trading. The company attributed this slower-than-expected DAU growth to fluctuations resulting from changes in Google’s algorithm.

Since its IPO at $34 per share in March last year, RDDT stock has surged past $215 earlier this week, significantly outperforming the S&P 500’s 16% gain over the same period. Reddit’s strong user engagement has contributed to its stock’s impressive performance. 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 100% returns since inception.

Reddit’s Q4 revenue of $428 million reflected an impressive 71% year-over-year increase, driven by user growth and higher ARPU. DAUs increased by 39% year-over-year to 101.7 million, though this was slightly below the 103.1 million consensus estimate. The company also saw its ARPU climb by 23% to $4.21 in Q4. Additionally, Reddit’s adjusted EBITDA margin increased fourfold to 36.1%, up from 9.3% in the previous year’s quarter. Higher revenue and expanding margins resulted in earnings of $0.36 per share, compared to breaking even in the same period last year. Looking ahead, Reddit expects Q1’25 revenue of $365 million and an adjusted EBITDA of $85 million at the mid-point of its guidance, surpassing the street’s $358 million 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 interest rate cuts and ongoing trade disputes, could RDDT sustain its upward trajectory? Since the stock was only listed last year, there is no historical data to assess its valuation multiple. At its current price of approximately $200, RDDT trades at 22 times trailing revenue. With sales increasing by 62% in 2024 and expected to grow at a CAGR of over 30% in the next three years, the company’s high valuation multiple appears justified. Additionally, Reddit’s improving profitability suggests that its bottom-line growth could accelerate further. The decline in RDDT stock following the earnings release could represent an opportunity for long-term investors looking for strong returns.

Although RDDT shares are currently trending lower, it’s useful to compare how some of its competitors perform on key metrics. Explore additional company comparisons across industries at Peer Comparisons.

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