The Reddit stock price popped by over 10% in the extended hours after the company published strong financial results and boosted its forward estimates. It jumped to a high of $2[4, up by 175% from its lowest level this year, bringing its market capitalization to over $36 billion.
Reddit earnings growth accelerate
Reddit, one of the top companies in the social media industry, published strong financial results on Thursday.
These numbers showed that its revenue rose by 68% in the third quarter to $585 million, with its advertising revenue rising by 74% to $549 million.
This growth happened as more users continued visiting its website and applications, and more advertisers embraced its platform. Other online advertising companies like Meta Platforms and Google also published strong advertising numbers.
More people are starting using its platform, with the daily active unique users rising by 19% to 116 million, making it one or the fastest growing social media companies in the United States.
Weekly active users rose by 21% to 443 million, with most of the growth coming from the international markets. US revenue rose by 67%, while the international segment rose by 74%.
The company has also become highly profitable, with the net income margin rising to 27.8% from the previous 8.6%. In a statement, the CEO said:
“444 million people come here each week for authentic conversations they can’t find anywhere else, and increasingly, for engagement with brands, institutions and publishers.”
Most importantly, the company boosted its forward guidance and now expects that its fourth-quarter revenue will be between $655 million and $665 million, while its adjusted revenue will be between $275 million and $285 million. Reddit is often highly conservative, meaning that its real numbers will be higher than expected.
READ MORE: Reddit shares surge 20% on record profit and strong revenue outlook
In addition to advertising, the company is slowly diversifying its business to areas like search and artificial intelligence. Its search solution handled over 75 million queries each week in the third quarter.
Analysts believe that the company has a big opportunity to monetize its data by partnering with rich companies in the industry. It has already reached a $60 million partnership with Google, and has another one with OpenAI.
It recently sued Perplexity and Anthropic, and there are chances that these suits will generate substantial sums of money in fees. This partnership revenue is important because of its high margins.
Analysts believe that Reddit’s business has more room to grow. The average estimate is that its annual revenue will jump by 64% to $2.14 billion. It will then jump by 35% next year to $2.8 billion.
This revenue growth will help to justify the company’s valuation, which is much higher than that of the S&P 500 Index and other companies. It has a forward PE ratio of 62.50 and a trailing one of 90.
Reddit stock price technical analysis
The daily timeframe chart shows that the Reddit share price has jumped in the past few months, moving from a low of $79 to $224 today.
It has remained above the 50-day and 100-day Exponential Moving Averages despite the recent retreat m
Most importantly, it has formed a cup-and-handle pattern, which is a common bullish continuation pattern in technical analysis.
Therefore, the stock will likely continue rising as bulls target the next key resistance level at $235, the highest part of the cup and handle pattern. A move above that level will point to more gains, potentially to the year-to-date high of $282.
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