Key Takeaways
- Reddit fell 9.2% over the past week to $137 ahead of its October 29 third-quarter report.
- Second-quarter revenue rose 61% to $805 million, but third-quarter guidance implies growth slowing to 47% to 49%.
- U.S. daily active uniques grew just 6% while international users jumped 28%, shifting growth toward markets that monetize at lower rates.
- At 16.0x forward earnings with about $2.8 billion in net cash, the stock already prices in real doubt.
Reddit (RDDT) heads into Thursday’s third-quarter report with an awkward split screen. The business just logged its eighth straight quarter of growth above 60%.
Yet the stock closed at $137 on October 27, down 9.2% over the past week. It now sits 48% below its 52-week high of $264.
The gap says investors are pricing in a slowdown, and management has already confirmed one. Third-quarter guidance calls for growth of 47% to 49%.
That is still enormous for a company this size. But a stock that joined the S&P 500 in August on momentum tends to trade on the rate of change, so October 29 is about the slope.
Growth is cooling from a high base
Second-quarter numbers left little to criticize. Revenue rose 61% to $805 million, well ahead of the $730 million consensus.
- Advertising revenue grew 64% to $762 million.
- Adjusted EBITDA more than doubled to $343 million, a 43% margin.
- Diluted EPS climbed to $1.25 from $0.45.
The third-quarter guide calls for $860 million to $870 million in revenue and $385 million to $395 million in adjusted EBITDA. Both topped consensus, yet the midpoint still marks a clear step down from 61%.
Here is how that curve has bent across recent quarters:
Reddit added more than $500 million of quarterly revenue in two years. So each new point of growth now requires a much larger dollar gain.
International users carry the load
Daily active uniques rose 18% to 130.3 million. The mix is the real story.
International DAUq jumped 28% to 77.1 million while the U.S. grew only 6% to 53.2 million. The higher-monetizing U.S. audience is maturing, and growth is shifting to markets that earn less per user.
Management’s long-term framework targets 1 billion global users and 100 million in the U.S. It also says new-user retention improved 50% year over year, which it treats as its main signal of product quality.
Does Wall Street still believe in a steep path from here?
Consensus implies roughly 42.5% annual revenue growth over the next two years. That only works if international users monetize faster and data licensing, which lifted other revenue 24% to $43 million, keeps expanding.
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
The multiple already prices doubt
Reddit trades at 16.0x forward earnings and 13.2x forward EBITDA. It also carries about $2.8 billion in net cash.
For comparison, AppLovin (APP) trades at 14.2x forward earnings with a 77.4% trailing EBIT margin. Reddit’s EBIT margin sits at 28.2%, so it has far more room to expand, and that runway makes its multiple look reasonable.
The compression since the IPO has been dramatic…
The risks are real, though. Reddit is suing Perplexity AI and several scraping firms over content allegedly pulled through Google search results run by Alphabet (GOOGL). It is also fighting to block its former law firm, Proskauer Rose, from representing Perplexity.
Reddit now answers to the EU’s rules for very large online platforms as well. Meanwhile, Chief Product Officer Maria Angelidou-Smith left on October 14, and executives keep selling stock under trading plans.
My take: the selloff looks overdone for a company guiding to nearly 50% growth with expanding margins and net cash. Still, the U.S. user number is the weak spot, and I would wait for it to reaccelerate before buying aggressively.
On October 29, watch three numbers: revenue against the $865 million midpoint, U.S. DAUq growth, and the fourth-quarter guide. A guide above 40% would likely ease the deceleration worry.
So what is Reddit stock actually worth?
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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!
