Reddit shares have soared after the social media company delivered its first earnings report following its March initial public offering, with its debut quarter a far stronger one than Wall Street anticipated.
Reddit CEO Steve Huffman, center, rings the opening bell at Reddit’s March IPO.
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Key Takeaways
- Reddit’s stock skyrocketed 15% to $57 per share in after hours trading, hovering at what would be its richest level since its first week of trading and more than 50% its $40 ticker in mid-April.
- The surge came after Reddit beat consensus analyst projections across the board.
- Reddit reported $243 million in second-quarter sales ($214 billion forecasted), $10 million in adjusted earnings (-$23.9 million), 82.7 daily active users (76.6 million) and $2.94 average revenue per user ($2.90).
- The online community forum kingpin also said it expects to bring in $240 million to $255 million of second-quarter sales and $0 to $15 million in adjusted second-quarter earnings, well above analyst forecasts of $228 million and -$19 million, respectively.
Contra
Like most baby-faced public companies, Reddit still has a lot of work to do to justify the roughly $9 billion valuation it will likely fetch when markets open Wednesday.
Reddit is expected to bring in roughly $1.05 billion of revenue in 2024, based on its first-quarter results, midpoint second-quarter guide and analyst forecasts for the second half of the year.
That would place Reddit at a roughly 9 price-to-sales ratio, a valuation richer than that of about 90% of S&P 500 companies (price-to-sales compare a company’s total market value to its annual revenues).
Key Background
If history is any indication, Reddit may seem ultimately doomed considering the spotty track record of other social media companies not named Facebook at turning a profit—see Pinterest, Snap and Twitter—but its bottom line growth appears steady.
Still, Wall Street doesn’t expect Reddit to turn a full-year profit until 2027, requiring ample patience for a company founded in 2005.
Arguably the highest-profile IPO of 2024, Reddit priced its offering at $34 per share, enjoying an uncommon sustained boost above its IPO for the last six weeks.
