Loop Capital has revised its price target for Reddit (RDDT, Financial), bringing it down to $200 from the previous $210, while maintaining a Buy rating on the stock. This adjustment follows Reddit's Q2 year-over-year user growth, which is experiencing a slowdown due to tough comparisons. Despite this, the firm anticipates an 80% two-year stacked growth, aligning with the Q1 performance.
The outlook for Reddit's medium- to long-term expansion is promising, driven by the development of new offerings such as enhanced search capabilities and dynamic product advertisements. Additionally, growth is expected through monetization efforts aligning more closely with industry standards, as well as increased revenue from data licensing contracts.
RDDT Key Business Developments
Release Date: May 01, 2025
- Revenue: $392 million, up 61% year-over-year.
- Advertising Revenue: $359 million, up 61% year-over-year.
- Net Income: $26 million.
- Adjusted EBITDA: $115 million, with a margin of 29%.
- Gross Margin: 90.5%, up 190 basis points year-over-year.
- Operating Cash Flow: $128 million, with a margin of 33% of revenue.
- Free Cash Flow: $127 million, 32% of revenue.
- International Revenue Growth: 83% year-over-year, fastest in three years.
- Active Advertisers Growth: Over 50% year-over-year.
- Headcount: Slightly more than 2,300, up 3% sequentially.
- Cash and Investments: $1.95 billion, up over $110 million sequentially.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Reddit Inc (RDDT, Financial) reported a 61% year-over-year increase in revenue, reaching $392 million for Q1 2025.
- The company achieved a 31% year-over-year growth in both weekly and daily active users, with 401 million weekly and 108 million daily users.
- Reddit's advertising business grew by 61% year-over-year, driven by broad-based strength across objectives, channels, verticals, and geographies.
- International ad revenue grew 83% year-over-year, marking the fastest growth rate in three years.
- Reddit's adjusted EBITDA margin reached 29%, with a net income margin of 7%, showcasing strong profitability and financial health.
Negative Points
- The macroeconomic environment remains uncertain, which could impact advertising revenue and user engagement.
- Reddit faces challenges with variability in traffic from external sources, such as search engines, which can affect user growth.
- There is a need to evolve account creation processes to combat fake accounts and bots, which could impact user experience.
- The company is still in the early stages of testing and integrating new ad formats like Dynamic Product Ads, which may take time to scale.
- Reddit's international revenue, while growing, still represents only 20% of the business despite more than half of the audience being outside the US.
