Reddit Q1 Earnings Preview and Market Expectations
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 1 day ago
0mins
Should l Buy RDDT?
Source: seekingalpha
- Earnings Announcement Date: Reddit (RDDT) is set to announce its Q1 2023 earnings on April 30th after market close, with consensus EPS estimated at $1.11 and revenue at $609.78 million, reflecting a robust year-over-year growth of 55.4%.
- Earnings Estimate Revisions: Over the past three months, EPS estimates have seen four upward revisions and one downward revision, while revenue estimates have experienced 21 upward revisions and one downward revision, indicating growing analyst confidence in Reddit's future performance, which could drive stock price increases.
- Growth Inflection Point Analysis: Analysts suggest that Reddit's Q1 earnings report could mark an inflection point for growth quality, and if results meet or exceed expectations, it may attract more investor interest, enhancing market recognition of its long-term value.
- Increased Market Attractiveness: As Reddit's stock price is increasingly viewed as attractive, investors may reassess its position in the social media landscape, particularly against the backdrop of legislative pushes in California and Japan to restrict social media access for minors, which could impact user growth and advertising revenue.
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Analyst Views on RDDT
Wall Street analysts forecast RDDT stock price to rise
22 Analyst Rating
14 Buy
8 Hold
0 Sell
Moderate Buy
Current: 147.230
Low
207.00
Averages
260.00
High
325.00
Current: 147.230
Low
207.00
Averages
260.00
High
325.00
About RDDT
Reddit, Inc. operates a social platform, Reddit. Reddit is a community of communities. It is built on shared interests, passion, and trust and is home to open and authentic conversations on the Internet. Reddit is a global, digital city where anyone in the world can join a community to learn from one another, engage in authentic conversations, explore passions, research new hobbies, exchange goods and services, create new communities and experiences, share a few laughs, and find belonging. Reddit has thousands of communities, endless conversations, and authentic human connections. Communities on Reddit are organized based on specific interests and are called subreddits. Reddit offers real-time access to evolving and dynamic topics, such as sports, movies, news, fashion, and the latest trends. On Reddit, users can submit, vote, and comment on the topics they care about. It has approximately 100,000+ active communities and approximately 101+ million daily active visitors.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Strong Financial Performance: In its latest earnings report, Reddit reported a 69% year-over-year revenue increase to $663 million, with advertising making up most of the revenue, and daily active users rising 17% to 126.8 million, indicating robust market demand and user growth potential.
- Lightweight Operating Model: Huffman noted that Reddit's lightweight model allows it to benefit from the AI boom without incurring massive capital expenditures like competitors, with quarterly capital expenditures around $1 million, significantly reducing operational costs.
- Significant Cash Flow Growth: Thanks to its lightweight operations, Reddit achieved free cash flow of $311 million in the March quarter, more than doubling from the previous year, indicating the company's strong financial health while experiencing rapid growth.
See More
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- Significant Revenue Growth: Reddit's Q1 total revenue reached $663 million, marking a 69% year-over-year increase and exceeding market expectations by $53.63 million, primarily driven by a 74% surge in advertising revenue, indicating enhanced competitiveness in the advertising market.
- Strong User Growth: Daily average users (DAUs) in the U.S. rose 7% to 53.5 million, while international DAUs increased 26% to 73.3 million, resulting in a total of 126.8 million global DAUs, surpassing estimates by 50, showcasing the platform's expanding user base and appeal.
- Increased Revenue Per User: Average revenue per user (ARPU) climbed 44% to $5.23, exceeding the expected $5.05, reflecting the company's success in enhancing user value and advertising monetization capabilities.
- Optimistic Future Outlook: Reddit expects Q2 revenue to range between $715 million and $725 million, with a midpoint of $720 million, surpassing the market estimate of $714 million, demonstrating the company's confidence in future growth.
See More
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- Surge in Advertising Revenue: Reddit reported $663 million in revenue for Q1, driven by a remarkable 74% growth in advertising revenue, surpassing the $609.8 million expected by analysts, indicating significant success in executing its advertising strategy and potential for further profitability enhancement.
- Positive Market Reaction: Following the Q1 earnings report, Reddit's stock (RDDT) opened with its best single-day percentage gains in nearly a year, while retail sentiment on Stocktwits shifted from 'bullish' to 'extremely bullish', reflecting strong market confidence in the company's future growth prospects.
- Strategic Positioning in AI: Huffman emphasized that Reddit's vast collection of authentic human content, accumulated over more than two decades, positions the platform as a key player in AI training, while the company's advertising strategy is set to further enhance its competitive edge in this domain, driving long-term growth.
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See More
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- Cloud Transition: CFO James Chuong cautioned that the shift of customers to cloud services would result in a more muted level of data center expansion, with expectations for moderated revenue growth in Q4, which could impact future market performance.
- Product Advantage: Analyst Meilin Quinn noted that while workflows may be taken over by agents, there remains a need for trusted company knowledge and systems, providing Atlassian with a stronger foothold in engineering processes and enhancing its competitive edge.
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