Area of interest social-media platform operator Reddit (NYSE:RDDT) isn’t recent, but it surely’s recent to Wall Street as the corporate just filed for its initial public offering (IPO) in February and debuted for public trading in March. Fast-forward to May 7, and all eyes were on Reddit to see how it might fare in its first post-IPO earnings report.
It’s amazing to see this occur, as Reddit was principally a secret online hideout for years. Or no less than, it was secret until meme-stock traders thrust it onto the front page of the financial-news media in 2021.
Reddit users, called Redditors, made stock-market stars out of Gamestop (NYSE:GME) and AMC Entertainment (NYSE:AMC) a number of years ago. Now the highlight is turned back on Reddit, and one can hope that the social-media platform can concentrate on profits as an alternative of memes.
It might probably be debated whether RDDT stock is definitely a meme stock. Nonetheless, the stock had meme-like qualities upon its public debut for trading, because it rallied 48% on IPO day.
Naturally, some onlookers and commentators questioned whether Reddit stock’s price move was justified. The corporate’s full-year 2023 sales increased 20% to $804 million versus $666.7 million in 2022. Nonetheless, Reddit reported a $90.8 million net earnings loss in 2023.
Moreover, the corporate has failed to provide a profitable yr because it launched in 2005. Thus, in consideration of Reddit’s less-than-ideal financial track record, some commentators weren’t particularly enamored with it.
For instance, Bernstein analysts led by Mark Shmulik initiated their coverage of Reddit stock with an Underperform rating.
“If Pinterest and Snapchat proceed to struggle to live as much as their potential with higher engagement/business intent, higher ad tools… what hope does Reddit have with their worst-in-class engagement, anonymous user base, and NSFW (not protected for work) content?” the Bernstein analysts queried in a note.
Furthermore, they called RDDT an “institutional meme stock” and expressed skepticism concerning the alleged guarantees of “profits just across the corner.” Nonetheless, I can’t confirm whether Reddit or anyone/the rest actually promised around-the-corner profits.
It’s hard to disclaim that Reddit appeared richly valued upon its public debut, no less than based on one traditional metric. Per CNBC, using the corporate’s market capitalization at its IPO, it had a price-to-sales (P/S) ratio of around 8. For comparison, Pinterest (NYSE:PINS) had a P/S ratio of seven.5 while Snap’s (NYSE:SNAP) was 3.9.
Reddit’s revenue run-up
Thus, Reddit had quite a bit to prove with its first post-IPO earnings report on Tuesday afternoon. Undoubtedly, each the bulls and the critics sought clarity on its fundamentals and evidence that it’s financially viable.
Reddit stock jumped 13% in after-hours trading, so there’s a clue that it delivered some fodder for the bulls. Whether the corporate was actually profitable in the primary quarter is a matter for discussion — but more on that topic in a moment.
First things first. In Q1, Reddit increased its every day lively “uniques” (a measure of visitor traffic) by 37% yr over yr to 82.7 million. Subsequently, it definitely appears that Reddit’s social-media platform was highly lively in the primary quarter.
Activity can result in commercial revenue, and Reddit’s ad revenue grew 39% yr over yr to $222.7 million. Furthermore, the corporate’s total revenue increased 48% yr over yr to $243 million; this result beat Wall Street’s consensus estimate of $212.8 million.
Was Reddit actually profitable?
Now for the bottom-line stats (drum roll, please). The skeptics would surely indicate that Reddit incurred a first-quarter net earnings lack of $575.1 million. Then again, the corporate was quick to indicate that this net loss was “driven by IPO expenses.”
More specifically, “Stock-based compensation expense and related taxes were $595.5 million.”
Hence, if we elect to not count the one-time IPO-related expenses, it could be posited that Reddit had a net profit for the quarter.
I’ll admit, I’m engaging in some mental gymnastics here. For what it’s value, there’s one other bottom-line metric that could possibly be cited as a substitute for Reddit’s net income/loss.
In its quarterly press release, the corporate emphasized that it had its “first profitable Q1 on an adjusted EBITDA basis.” In numerical terms, Reddit recorded Q1-2024 adjusted EBITDA of $10 million, versus an adjusted EBITDA lack of $50.2 million within the year-earlier quarter.
Let’s not get bogged down in semantics. No matter whether Reddit ought to be considered first-quarter profitable or not, it undeniably recorded robust user traffic and revenue. Thus, while the pundits argue about what’s real and what’s only a meme, be at liberty so as to add a number of Reddit shares as a speculative bet on a longtime but rising social-media star.