Shares in social media site Reddit (NASDAQ:RDDT) stock rose 10% overnight after it reported its first results as a public company.
For the quarter ending in March, Reddit lost $575 million, $8.19 per share, on revenues of $243 million. However, the loss was smaller than expected, revenue was higher, and there was over $29 million in free cash flow. Reddit held its initial public offering (IPO) on March 21.
Shares were due to open this morning at $54.30 per share, its market capitalization near $9 billion.
Reddit, Set, Go
Needham led analysts in praising the quarter, raising its price target to $63 per share and adding it to their “conviction buy” list. The brokerage blamed the costs of Reddit’s IPO for the loss, adding they’re optimistic about Reddit licensing its data for artificial intelligence (AI) applications. Analysts at Citigroup were more skeptical, saying it remains to be seen whether demand for the data will expand.
For their part, Reddit executives said on their conference call that they’re at the start of their “monetization journey.”
Social media companies have turned hot again, both on their data and on growing ad spending. This has been led by the Cloud Czars, with Meta Platforms (NASDAQ:META), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) all reporting ad revenues up 20% or more in the first quarter.
Reddit’s guidance for the second quarter was also ahead of estimates, with revenue of $240 million to $255 million, 32% ahead of the figure a year ago. Seven analysts raised their price targets to an average of $55 per share.
Founded in 2005, Reddit is in the early stages of becoming an ad-based business. The company said its ads are based on what users do on Reddit, calling its contextual advertising model “resilient” against regulatory attacks. Ads appear in feeds in the form of “promoted” posts as on X, formerly Twitter.
RDDT Stock: What Happens Next?
The risk for social media sites is always what the users think, not what the advertisers think. Remembering that they’re the product and not abusing that trust is the key to success.
As of this writing, Dana Blankenhorn had a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
