Reddit Q4 Earnings Exceed Estimates Amid User Growth Concerns

Reddit (NYSE: RDDT) outperformed earnings estimates in Q4 with EPS of $0.36 versus $0.25. However, DAUs fell short of expectations, leading to a 15% drop in stock price after hours. Investors remain cautious amid macroeconomic uncertainties.

Date: 14-02-2025

AI Rating: 6

Earnings Per Share (EPS): Reddit reported an earnings per share of $0.36, which exceeded the street estimate of $0.25. This indicates strong bottom-line performance and suggests that the company is managing costs effectively relative to revenues.

Revenue Growth: The company's revenue for Q4 was $428 million, marking a significant 71% year-over-year increase, which is a strong indicator of sales growth driven by user engagement and average revenue per user (ARPU).

Net Income: While specific net income figures were not given in the text, the positive EPS reflects that Reddit is likely generating net income, considering its earnings have improved from breakeven last year.

Profit Margins: Reddit's adjusted EBITDA margin surged to 36.1%, up from 9.3% a year ago, highlighting improved operational efficiency and profitability amidst higher revenue.

Free Cash Flow (FCF): There's no specific mention of Free Cash Flow in the report, thus this area is not analyzable.

Return on Equity (ROE): There is no information regarding Return on Equity in the report.

Despite the solid earnings and revenue growth, the significant drop in stock price (15% after-hours) stems from the quarterly user's daily active users (DAUs) missing the expected targets, attributed to algorithm changes. This volatility highlights investor concerns about user growth sustainability, which is critical for Reddit's advertising-driven model.

The expectation of $365 million in sales for Q1’25, above the street’s estimate, along with anticipated EBITDA growth, suggests that the long-term outlook may remain stable if user engagement metrics improve.

Stocks: RDDT