Reddit Stock Eyes Sub-$200 Drop As User Growth Worries Eclipse Q4 Beat, Guidance: Retail Turns Wary

Reddit, Inc. (RDDT) shares tumbled in Thursday’s premarket trading as investors reacted negatively to the community-based social media company’s fiscal year 2024 fourth-quarter results. The weakness stemmed from fears over slowing user growth.

San Francisco, California-based Reddit reported fourth-quarter earnings per share (EPS) and revenue that exceeded the consensus estimates and the guidance issued in late October. 

Here’s how the headline numbers panned out:

• EPS: $0.36 vs. $0.25 consensus estimate
• Revenue: $427.7 million vs. $404.88-million consensus estimate and the guidance of $385 million to $400 million
• Advertising revenue climbed 60% to $394.5 million, or 92% of the total revenue vs. 56% growth in Q3
• Adjusted earnings before interest taxes, depreciation and amortization (EBITDA): $154.3 million vs. $131.2 million last year and the guidance of $110 million to $125 million

Reddit’s topline grew 71% year over year (YoY) and over 80% of the total revenue came from the U.S. The company generated operating cash flow of $90 million and free cash flow of $89.2 million during the quarter. Capital expenditure for the quarter was at $0.8 million.

It ended the quarter with a cash position of $1.84 billion.

Reddit co-founder and CEO Steve Huffman said, “It was another strong quarter as we accomplished exciting milestones across revenue and international growth.”

Among operational metrics, gross margin expanded 420 basis points YoY to 92.6% and adjusted EBITDA margin improved to 36.1% from 9.3%.

The user metrics were as follows:

• Daily active unique users (DAUq): 101.7 million, up 39% YoY vs. 47’% growth in Q3
• Weekly average unique users (WAUq): 379.4 million, up 42% Vs. 53% growth in Q3
• Average revenue per user (ARPU): $4.21, up 23% vs. $3.58, up 14%, in Q3

The growth in the DAUqs and WAUqs was slower in the U.S. versus Reddit’s international operations. Huffman said in a letter to shareholders that the company experienced some volatility with Google Search triggered by a periodic algorithm change, but traffic from search has recovered so far in the first quarter.

Looking ahead, Reddit guided the fiscal year 2025 first-quarter revenue in the range of $360 million to $370 million, exceeding the analysts’ average estimate of $358.4 million. The company sees adjusted EBITDA at $80 million to $90 million.

Sell-side analysts were largely bullish, with JMP Securities and Citi upping the price target and recommending buying the dip, TheFly reported.

On Stocktwits, sentiment toward Reddit stock improved to 'neutral' (49/100) from 'bearish' a day ago. but message volume remained at ‘extremely high’ levels.

Valuation continues to be an irritant, with one watcher calling it “too rich.” They were also not pleased with the sequential revenue decline projected by the company.

But another user called for a recovery in the stock price. 

Reddit stock fell 14.32% to $185.48 in premarket trading, but it is up over 32% year-to-date (YTD). Since its March 21 listing, the stock has gained 329%. It hit an all-time intraday high of $230.41 earlier this week.

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