TipRanks
5 min read
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Reddit Inc. (RDDT) stock has been on a wild ride since its IPO last March, soaring from $34 to a dizzying $230 before pulling back at $103 today. The bullish moment has been fueled by Reddit’s jaw-dropping growth, tempered by whispers of doubt about whether it can keep the momentum going. I’m betting it can. With its unique platform and skyrocketing metrics in both the top and bottom lines, I see Reddit’s dip as a rare chance to buy into a social media giant poised for a big rebound.
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Reddit’s strength lies in its vibrant, sticky community. In Q1, daily active users (DAUs) on the platform hit 108.1 million, a 31% year-over-year increase, while weekly users totaled 401 million. Millions of people are now exploring all kinds of subreddits for everything from niche hobbies to breaking news. I would argue that, along with X, Reddit is one of the best places to go to feel the pulse of what the “conversation” is for any given topic.
In the meantime, Reddit’s “Reddit Answers” feature, now at 1 million weekly users, has made it easier for people to find solutions, boosting engagement and keeping users hooked longer. This should prove to be a strong short to medium-term catalyst for Reddit to sustain sticky user metrics. And this stickiness translates into real staying power.
The platform’s ability to connect users over hyper-specific interests creates a network effect that’s hard to replicate. As more users join, the content becomes richer, attracting even more people. It’s a virtuous cycle that drives growth and makes it a magnet for advertisers seeking to tap into passionate, engaged audiences.
Speaking of Reddit’s advertising business, it is firing on all cylinders, with Q1 ad revenue soaring 61% to $359 million. I really like how Reddit’s ads are sneaky but effective. You’re deep in a thread about camping gear, and suddenly there’s a sponsored post for a tent that fits the conversation perfectly.
That’s a superb delivery system that has advertisers lining up. Notably, over 50% more advertisers joined the platform year-over-year, indicating that brands view Reddit as a valuable channel for delivering high return on ad spend (ROAS).
Reddit’s data has emerged as a highly valuable asset, and the company is beginning to effectively monetize it. In the last quarter, revenue from data licensing and related sources rose by 66% to $34 million. This growth is largely driven by the increasing demand for high-quality, user-generated content to train artificial intelligence models. Reddit’s extensive and diverse dataset, covering a wide range of topics, makes it particularly well-suited for this purpose.
