Reddit (RDDT) Stock: Shares Jump 18% on First-Quarter Earnings Beat

TLDR

Reddit reported Q1 profit of 13 cents per share, beating 2-cent forecast, with sales of $392.4 million Daily active users grew to 108.1 million, a 31% year-over-year increase Advertising revenue reached $358.8 million, up 61% from Q1 2024 JPMorgan raised price target from $110 to $145, maintaining Neutral rating Reddit forecasts Q2 revenue of $410-430 million and adjusted EBITDA of $110-130 million

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Reddit’s stock surged 18% following the release of its first-quarter earnings report that exceeded analysts’ expectations by a wide margin. The social media platform posted a profit of 13 cents per share, far above the forecasted 2 cents, and sales reached $392.4 million, well beyond the expected $369.5 million.

Reddit, Inc. (RDDT)

The company saw strong growth in its user base, with daily active users climbing to 108.1 million, representing a 31% increase compared to the same period last year. This number slightly topped analyst estimates of 107.3 million users.

Advertising revenue, which makes up almost all of Reddit’s income, came in at $358.8 million, showing impressive growth of 61% over the first quarter of 2024.

In after-hours trading, Reddit shares reached approximately $140, though the stock has experienced major swings over the past six months. Despite the recent surge, shares were still down nearly 50% from their 52-week high reached in early February.

Wall Street’s Response

Several financial institutions adjusted their outlooks on Reddit following the earnings announcement. JPMorgan raised its price target for the company from $110 to $145 while maintaining a Neutral rating.

Citi analysts were more bullish, lifting their price target to $158 and keeping a Buy rating, citing accelerated ad revenue growth and increased user engagement as key factors. Goldman Sachs also adjusted its target to $140.

Bernstein SocGen Group upgraded Reddit from Underperform to Market Perform and raised its price target to $130, acknowledging the company’s solid management team and ability to navigate market challenges.

The strong financial performance is attributed to robust advertising revenue growth and the rise in daily active users. Reddit’s first-quarter success is further supported by 70% operating leverage and a 29% EBITDA margin, showing efficient cost management and strong profitability.

Looking Ahead

For the second quarter, Reddit management provided an optimistic outlook, forecasting revenue between $410 million and $430 million, with adjusted EBITDA projected at $110 million to $130 million.

The company is moving forward with strategic initiatives including the broader rollout of Reddit Answers and plans to launch Direct Purchase Ads. These developments are seen as potential catalysts for continued growth in both user base and revenue.

CEO Steve Huffman highlighted Reddit’s unique position in the market, stating in a shareholder letter: “Our unique advantage is that people come to Reddit with intent—they’re not just scrolling, they’re also seeking. They come to Reddit for real opinions from real people.”

This user intent creates what Oppenheimer analysts called “very specific signals about user interests, presenting a very compelling advertising opportunity.” They also noted that “Reddit” is the sixth-most-searched term on Google, creating a symbiotic relationship with the search engine.

Despite the positive momentum, Reddit did flag some potential headwinds. The company anticipates near-term traffic volatility, mainly affecting U.S. logged-out users, due to changes in the Google search ecosystem.

In April, daily active user growth slowed to a high-teens percentage range, which could impact future performance. However, analysts like those at Citi believe Reddit’s revenue growth will remain strong despite these challenges.

JPMorgan projects an average revenue growth of 12% for 2025 and 2026, with adjusted EBITDA and free cash flow expected to increase by 33% and 34%, respectively. These projections support Reddit’s premium valuation, with a December 2025 price target based on approximately 35 times the estimated 2026 adjusted EBITDA of $807 million.

The stock has a history of volatility, having surged in October when Reddit surprised investors with its first profit on an earnings per share basis. Shares reached a 52-week closing high of $225 on February 7 but have since pulled back from that level.

Reddit currently trades at a market capitalization of $21.49 billion and maintains gross profit margins of 90.49%, with more cash than debt on its balance sheet. The platform’s revenue growth outpaced non-GAAP expenses by approximately 3.2 times during the first quarter.

The latest earnings report has certainly changed the narrative for Reddit, demonstrating that the platform can deliver strong financial results while continuing to grow its user base. The stock’s performance in the coming months will likely depend on whether the company can maintain this momentum and successfully execute on its strategic initiatives.

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