On Friday, Reddit, Inc. (NYSE: RDDT) experienced a decline in its stock price, a reaction contrasting with the wider market's upward momentum following the release of its fourth-quarter financial results. Initially, Reddit shares surged nearly 8% in pre-market trading, reflecting investor enthusiasm about the company’s performance. However, this initial optimism was tempered as the broader market digested the details of Reddit’s earnings report, leading to heightened volatility in the stock price.
The company reported key performance indicators that highlighted substantial growth across its main business segments. Reddit's adjusted earnings per share (EPS) for the quarter stood at $1.24, noticeably surpassing analyst expectations set at $0.94. This earnings beat underlined Reddit's operational efficiency and profitability during the period.
Revenue for the quarter reached $726 million, marking a 70% increase year-over-year. This revenue expansion was largely propelled by a 75% rise in advertising income, underscoring Reddit's ability to monetize its platform effectively. Furthermore, the platform saw a significant rise in user engagement, with daily active unique users (DAUq) growing by 19% to reach 121.4 million. International growth was particularly strong, with a 28% increase that outpaced the 5% growth observed in U.S. logged-in users.
Despite these encouraging figures, several factors contributed to the bearish sentiment surrounding Reddit stock on the day. The slower growth rate among U.S. logged-in users raised concerns about the platform approaching market saturation in its most lucrative segment. Additionally, CEO Steve Huffman announced that Reddit plans to cease reporting the distinction between logged-in and logged-out users later in the year. Some market analysts interpreted this change as an attempt to obscure decelerating growth in the segment regarded as higher value due to user engagement and monetization potential.
Adding to the cautious outlook, key analysts adjusted their price targets for Reddit shares downward. Deepak Mathivanan from Cantor Fitzgerald reduced his price projection from $240 to $170 while maintaining a Neutral rating. The analyst’s stance reflected a preference to await more consistent evidence of user expansion before adopting a more bullish position.
On top of these analytical concerns, Reddit's stock had experienced a near 31% decline over the prior nine trading days. This recent downward trend may have motivated some investors to capitalize on the post-earnings price increase for profit-taking purposes, contributing to the stock’s volatility.
On the trading day in question, Reddit shares closed down 2.42% at $147.48. This performance stood in stark contrast to the Dow Jones Industrial Average, which rose by over 1,000 points, as tracked by the SPDR Dow Jones Industrial Average ETF (NYSE: DIA). The divergence between Reddit’s stock movement and the broader market’s positive trajectory illustrates the market’s nuanced evaluation of Reddit’s financial health and growth outlook.
Overall, while Reddit’s fourth-quarter results underscore strong revenue and user growth, concerns about slowing user expansion in key markets and changes in reporting transparency weigh on investor confidence. The current market response reflects a complex interplay of strong operational metrics with cautious forward-looking assessments by analysts and investors.