Reddit Inc. (RDDT) shares skyrocketed on Wednesday, surging over 42% after the company delivered a strong third-quarter earnings report and provided optimistic revenue guidance. The results exceeded analysts’ expectations, sending a clear signal that Reddit is on a path of robust growth.
In the after-hours trading session on Tuesday, Reddit announced earnings of 16 cents per share for the third quarter, a significant outperformance compared to analyst expectations of an 8-cent per share loss. Revenue for the quarter reached $348.4 million, exceeding the estimated $311.42 million. The company’s gross margin also saw a positive improvement, reaching 90.1%, up 280 basis points from the previous year. This impressive performance reflects Reddit’s ability to effectively manage its expenses and generate strong profits.
Further highlighting the company’s financial strength, Reddit generated $71.6 million in operating cash flow and $70.3 million in free cash flow during the third quarter. The company’s user base continues to expand, with daily active uniques rising 47% year-over-year to 97.2 million. This signifies the growing popularity and engagement on the platform, making it a highly attractive destination for users and advertisers alike.
“It was another strong quarter for Reddit and our communities as we achieved important milestones, including new levels of user traffic, revenue growth, and profitability,” said Steve Huffman, co-Founder and CEO of Reddit. “Reddit continues to be one of the most visited and trusted sites in the world with opportunities available to us that aren’t available to most companies.”
Looking ahead, Reddit is confident in its future performance. For the fourth quarter, the company anticipates revenue between $385 million and $400 million, surpassing estimates of $356.716 million. Adjusted EBITDA is projected to be between $110 million and $125 million. This optimistic outlook demonstrates Reddit’s commitment to sustained growth and profitability in the coming months.
The positive earnings report and upbeat guidance have also garnered strong support from Wall Street analysts. Following Reddit’s quarterly release, several analysts raised their price targets, reflecting their increased confidence in the company’s prospects. Needham upped its target from $85 to $120, BofA Securities increased theirs from $84 to $99, Piper Sandler went from $70 to $115, B. Riley Securities raised their target from $87 to $112, and Roth MKM elevated their target from $89 to $116. These upward revisions in price targets indicate a collective belief among analysts that RDDT shares are undervalued and have significant upside potential.
The strong performance and positive outlook for Reddit have significantly boosted investor sentiment. The company’s commitment to innovation, user engagement, and profitability has positioned it for continued success in the evolving digital landscape.
