Reddit (RDDT) stock is falling Thursday after the social media platform beat revenue and earnings expectations but fell short of analysts' forecasts for users during its fourth quarter.
In the three months ending December 31, Reddit's revenue increased 71.2% year over year to $427.7 million, boosted by a 39.1% increase in daily active uniques to an all-time high 101.7 million and a 23.1% increase in average revenue per unique to $4.21. Earnings per share (EPS) rose to 36 cents from breakeven in the year-ago period.
"It was another strong quarter as we accomplished exciting milestones across revenue and international growth," said Reddit CEO Steve Huffman in a statement. "However, what's most exciting is still ahead. We're focused on providing a best-in-class experience for finding community and trusted information, proving that Reddit is for everyone, everywhere."
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The headline results beat analysts' expectations. Wall Street was anticipating revenue of $405 million and earnings of 25 cents per share, according to CNBC.
However, users were expected to come in at 103.1 million. In his Q4 Letter to Shareholders, Huffman explained that the user numbers were affected by an algorithm change at Google.
"Later in Q4, we experienced some volatility with Google Search triggered by a periodic algorithm change, but traffic from search has recovered so far in Q1, and we've regained momentum," he said.
The CEO added that "referrals from search fluctuate from time to time" and that Reddit has "navigated numerous algorithm updates" in the past and "did an excellent job adapting to these latest changes effectively."
For its first quarter, Reddit said it expects to achieve revenue of $360 million to $370 million, ahead of analysts' expectations of $358 million.
Is Reddit stock a buy, sell or hold?
Reddit stock has been tearing up the price charts since it went public in March, rising about 330% even accounting for the decline of more than 6% on Thursday. That makes RDDT a pretty successful initial public offering so far. And Wall Street remains upbeat on the social media stock.
According to S&P Global Market Intelligence, the consensus recommendation among analysts it tracks is a Buy.
However, analysts' price targets have not been able to keep up with the surging stock price. The average price target currently stands at $198.05, representing a slight discount to current levels.
Financial services firm Needham maintained its Buy rating and raised its price target on RDDT stock to $220 from $190 following the earnings beat.
"From an earnings and valuation point of view, we are most optimistic about RDDT's upside from licensing its data to train GenAI Large Language Models (LLMs)," says Needham analyst Laura Martin, CFA, in a note this morning.
Martin says Reddit "is the best source of this type of daily information for LLMs," citing a content library of "1 billion posts and 16 billion comments collected over the past 18 years." Martin adds that Reddit's platform "hosts 1.2 million new posts and 7.5 million new comments every day."
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