Most of the companies that went public this year are struggling to stand out. Buying an IPO can be risky. However, 14 of the 186 debutantes of 2024 have more than doubled. Most of them are obscure, but one of this year's biggest rookie winners is a familiar household name.
Shares of Reddit(NYSE: RDDT) have more than tripled since the company went public at $34 in March. The online forum that bills itself as a community of communities is a standout of the 2024 IPO class. The shares are up 232% this year, the third biggest gainer among new offerings.
Reddit has momentum and improving fundamentals. Can it double again in 2025? Let's check out the bullish argument for the social platform to continue dominating the market in the year ahead.
Reddit or not, here it comes
Reddit has made a strong first impression since its springtime debut. It delivered blowout financial results in its first quarter as a publicly traded company in May. It also came through with a better-than-expected second quarter this summer. Last week's third-quarter earnings release was even better.
That's three for three, and right now Reddit is a much better company than it was when it went public less than eight months at less than a third of today's market cap. Reddit hit the market as a company with sharply decelerating growth, seeing its top-line gains slowing from 112% in 2021 to 38% a year later and 21% last year. It was also consistently profitless outside of the seasonally potent fourth quarter.
Reddit is a different company now. It's been putting the pedal to the metal in the publicly traded spotlight. Year-over-year revenue jumps have clocked in at 48%, 54%, and 68% in the first three quarters of this year, respectively. Acceleration is a great look on an IPO. Ceilings rise. Floors do, too.
The next bar-raising moment came last week. Reddit surprised analysts with a smaller-than-expected loss in its first two quarterly calls, but in the third quarter it silenced the naysayers with an actual profit. It's the first time that Reddit has posted positive reported earnings outside the fourth quarter. Analysts figured that Reddit wouldn't turn a full-year reported profit until 2026 when it hit the market. Now they see Reddit in the black next year.
Image source: Getty Images.
Avoiding the sophomore slump
Reddit may have seemed expensive when it went public at $34 in late March. It's not necessarily cheaper here at $109. However, there is still a lot of untapped upside for Reddit.
The platform itself is booming in popularity. Daily active users are up to 97.2 million at the end of September, a 47% surge over the past year. Revenue is growing even faster, a testament to Reddit's improving monetization. Advertising makes up roughly 90% of Reddit's business, and marketers are paying up to reach the platform's engaged user base that's not easy to reach anywhere else.
Reddit is also just scratching the surface. A little more than half of its users are located outside of the U.S., but international revenue is just 17% of the business. Average revenue per stateside daily active user of $5.88 for the entire third quarter is more than four times the $1.32 generated by the average international active participant. Global revenue per user will never catch up to the more lucrative domestic metrics, but most social platforms are being monetized more effectively. Reddit should continue to be more magnetic for marketers. Revenue and margin should grow even faster.
Reddit is unique, a home to more than 100,000 vocal communities. A lot of its regulars aren't active on other social media hotspots. There will be controversies, and there will be ups and downs, but for now, momentum is in favor the bulls, and that isn't likely to go away in 2025.
Should you invest $1,000 in Reddit right now?
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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
