Social media firm Reddit (NYSE:RDDT) — which specializes in facilitating digital communities that cover a wide variety of topics — is seeing shares soar on Monday. Earlier today, speculation about the resurgence of meme stock trading boosted sentiment. However, RDDT stock is also fundamentally moving on strong financial results which are encouraging the market for initial public offerings (IPOs).
On Sunday, Keith Gill — who goes by the online moniker Roaring Kitty — posted an image on social media platform X. The image was a drawing of a man sitting forward in his chair and holding a game controller, a popular meme symbolizing gamers “getting serious.”
Gill is famous (or infamous, in some circles) for catapulting the meme stock trading phenomenon to the forefront after sharing his case for GameStop (NYSE:GME) stock. With that in mind, retail investors interpreted the posting on his long-dormant account as a sign that Gill is ready to spearhead another rally. Meanwhile, the swing higher for RDDT stock has significance because meme stock trading first occurred in the Reddit subcategory r/WallStreetBets.
In many ways, today’s price action symbolizes a homecoming. Back in 2021, the phenomenon (which technically involved sparking short squeezes) temporarily helped small investors win big over hedge funds holding short positions, although many investors who bought in too late ended up holding the bag.
RDDT Stock Deserves Respect in Its Own Right
With that said, it would be inaccurate to characterize RDDT stock as an investment purely benefiting from internet-related phenomena. Last week, the underlying company posted overall strong results for its first quarterly earnings disclosure since its IPO.
Although Reddit posted a loss per share of $8.19, most of the focus was on the top line. Reddit rang up sales of $243 million during Q1, which easily beat the consensus estimate of $212.8 million. Further, the result represented a 48% lift from the year-ago quarter’s print of $163.7 million.
In addition, the social media firm reported $222.7 million in advertising revenue during the period, which was up 39% on a year-over-year (YOY) basis. Significantly, CNBC reports that this performance represented a “faster rate of growth than at its top competitors.”
The figures above offer encouragement for enterprises beyond just Reddit and RDDT stock. Firstly, the upbeat dynamic indicates that digital advertising may be initiating a comeback. The results also suggest that the IPO market may be robust after a disappointing lull.
In 2021, sentiment for new listings skyrocketed. Armed with plenty of time following the impact of the pandemic, many retail investors binged on IPOs and special purpose acquisition companies (SPACs). However, this category plunged in 2022.
Now, it’s possible that the IPO market could be entering a more sustainable phase.
Why It Matters
At the moment, Wall Street analysts rate RDDT stock as a consensus moderate buy. This assessment breaks down as eight buys, six holds and one sell. However, the average price target for shares comes in at $58.40 which, thanks to today’s meme-trading boost, now implies upside potential of less than 1%.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
