Following the social media company’s stunning investors with robust revenue growth and improving profitability in its first earnings since going public, Reddit shares shot up 14% on Wednesday.
Wall Street was taken aback by the company’s prediction late on Tuesday that it would report an adjusted profit in the second quarter, and its revenue guidance also exceeded expectations significantly.
The estimates came after Reddit posted better-than-expected results for the first three months of 2024, demonstrating the success of the company’s efforts to expand its advertising revenue and secure content license agreements with AI-focused businesses like Google.
Based on its premarket share price of $54.44 (up over 10%), Reddit, whose valuation is far lower than competitors like Meta Platforms, was expected to grow its market capitalization by more than $1 billion to more than $9 billion.
Several analysts increased their price targets for Reddit’s stock, resulting in a median view of $55. In March, the business set the price of $34 for its eagerly expected initial public offering.
Needham raises the target price to $63 from $55 while Citigroup raises the target price to $65 from $53 and Bernstein raises the target price to $45 from $40. RDDT stock trades around $55.
Earlier, Reddit had struck a deal with Google that allows the search giant to use posts from the online discussion site for training its artificial intelligence models and to improve services such as Google Search.
The quarterly results have come in well but investors need to be aware of the risks as highlighted by the company in its IPO note to US SEC – “Our results of operations may fluctuate from quarter to quarter, which makes them difficult to predict. We are in the early stages of monetizing our business and there is no assurance we will be able to scale our business for future growth.”
(With agency inputs)