Key Takeaways
- Reddit stock closed at $95 on Friday, down 37% in three months and just above its 52-week low.
- Third-quarter revenue rose 53% to $895 million, but CEO Steve Huffman warned daily users could fall by a low double-digit percentage.
- COO Jen Wong says logged-in users drive over 80% of monetization, and those users are still growing.
- At about 11x forward earnings with $3 billion of net cash, Reddit’s February 5 report is the next test.
Reddit (RDDT) closed at $95 on Friday, down 37% over three months and only about 7% above its 52-week low of $89.
The trouble comes from Alphabet (GOOGL). Google’s AI Overviews and AI Mode answer more questions on Google’s own pages, and Reddit says that cut its search referrals by more than 1 million a week in October.
Pinterest (PINS) sold off the same day after its third-quarter revenue grew just 12% and missed its own outlook. Reddit grew more than four times as fast, yet it now trades at about 11x forward earnings.
Strong quarter, shrinking audience
The third quarter was strong:
- Revenue up 53% to $895 million, above the $878 million consensus
- Net income of $283 million, or $1.40 per share, up 74%
- Free cash flow of $363 million, nearly double a year earlier
Revenue is up about 2.6 times in two years…
The warning came with the guide. Fourth-quarter revenue is guided to $1.00 billion to $1.03 billion, up 38% to 42%, and the midpoint sits below the roughly $1.05 billion consensus.
Huffman also said daily active uniques could fall by a low double-digit percentage from about 130 million if search referrals keep sliding.
The users who pay are still here
Most of the lost traffic is logged out: people who land from a Google search, read one thread and leave.
Those visitors earn Reddit very little. As COO Jen Wong put it on the call, “Over 80% of our monetization sits on the shoulders of logged-in in-app users.”
So Reddit is leaning into that base. It plans to test a primarily logged-in experience in select markets outside the U.S. this quarter, and it’s already testing ad placements in its search pages.
Its margins give it room to experiment. Compare them with Pinterest’s:
Reddit’s adjusted EBITDA margin hit 45% last quarter, and the guide implies about 49% for the fourth.
TIKR tracks 34 analysts on Reddit. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Reddit, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Reddit’s Analyst Ratings
A cheap stock with a real hole
How much is the market charging for all that profit?
Very little. Reddit trades at about 11x forward earnings, and its $3 billion of net cash covers roughly 16% of its market value. Wall Street’s average target of $151 implies 59% upside.
The risks go beyond Google, though. Reddit is challenging Australia’s social media ban for teens in court, calling the law “inept.” Its AI data licensing deals with Google and OpenAI also come up for renewal next year, so the company that’s draining its traffic is also one of its customers.
And a low double-digit drop in daily users would be a visible hit, even if most of the lost visitors never paid.
My take: The market is pricing Reddit as if logged-out traffic were the core of the business. The numbers say logged-in users are the core, and they’re still growing. At 11x earnings, I think the selloff went too far, but I’d want to see that logged-in base keep climbing.
February 5 is the proof point. Fourth-quarter revenue at or above $1.03 billion, with logged-in users still rising, would show Reddit can grow without Google sending the traffic.
So what is Reddit stock actually worth?
TIKR lets you forecast the future price of any stock in less than a minute. Just enter a few assumptions into TIKR’s valuation model and see what Reddit could be worth. Start from Wall Street consensus estimates, or adjust the inputs to reflect your own view of the business. It’s free to use.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
