Reddit Stock Soars 18% After Blowing Past Q1 Earnings Expectations

Reddit shares surged 18% after the company posted stronger-than-expected results in its first-ever quarterly earnings report. The social media giant reported earnings of $0.13 per share, significantly outperforming Wall Street’s estimate of just $0.02. Revenue also came in hot at $392.4 million, surpassing the anticipated $369.5 million.

Rapid User Growth and Advertising Surge

Reddit’s daily active users (DAUs) climbed to 108.1 million, marking a 31% year-over-year increase and edging out analysts’ forecasts of 107.3 million. The platform’s advertising revenue, its primary income stream, jumped 61% year-over-year, reaching $358.8 million in Q1 2024.

Despite its recent rally in after-hours trading to around $140, Reddit stock remains down nearly 50% from its 52-week high in early February. The stock has seen considerable volatility since its public debut.

Analyst Upgrades and Wall Street Optimism

The impressive earnings have prompted major financial firms to revise their outlooks:

• JPMorgan raised its price target from $110 to $145 while keeping a Neutral rating.
• Citi boosted its target to $158 and reaffirmed a Buy rating, citing strong ad performance and user growth.
• Goldman Sachs adjusted its target to $140.
• Bernstein SocGen upgraded Reddit to Market Perform and increased its target to $130, acknowledging the strength of its leadership and operating strategy.

Strong Financials Backed by Efficient Execution

Reddit’s robust results were driven by strong operational efficiency. The company reported a 70% operating leverage and a 29% EBITDA margin, showcasing disciplined cost control and profitability. Management now expects Q2 revenue to land between $410 million and $430 million, with adjusted EBITDA projected between $110 million and $130 million.

Strategic Moves Fueling Future Growth

Reddit is actively rolling out new features like Reddit Answers and launching Direct Purchase Ads, aimed at increasing monetization and engagement. CEO Steve Huffman emphasized Reddit’s distinct advantage in the digital space, noting that users come with intent, often searching for authentic answers rather than mindless scrolling.

Oppenheimer analysts echoed this sentiment, highlighting Reddit's unique ad value. They noted that "Reddit" is the sixth-most-searched term on Google, creating valuable user signals for advertisers.

Cautious Outlook Amid Search Ecosystem Shifts

Despite the positive momentum, Reddit acknowledged potential near-term traffic fluctuations due to changes in Google’s search algorithms, particularly among logged-out U.S. users. Daily user growth in April slowed to the high teens percentage-wise, a drop from earlier figures.

Still, analysts like those at Citi remain bullish, confident that Reddit’s revenue trajectory will continue. JPMorgan forecasts 12% annual revenue growth for 2025 and 2026, with EBITDA and free cash flow rising by 33% and 34%, respectively.

Reddit’s Financial Position and Market Value

Currently valued at $21.49 billion, Reddit boasts a healthy balance sheet with more cash than debt and a gross profit margin of 90.49%. During Q1, its revenue growth outpaced non-GAAP expense growth by over 3x, further underlining the platform’s scalability and earning potential.

As Reddit continues to evolve beyond its online forum roots, the platform is proving it can deliver both strong financial performance and consistent user expansion. The company’s future now hinges on its ability to sustain momentum and execute its long-term vision in a competitive digital landscape.