15% Crash in Reddit Stock (RDDT) on Lower Google Search, Despite Higher Revenue
The Reddit (RDDT) stock fell 15% lower in after-hours, following the release of earnings reports, which indicated slower growth from the Google Search engine.
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Reddit’s Q4 Earnings Beat Estimates but User Growth Disappoints
Reddit reported better-than-expected fourth-quarter earnings, but weaker-than-anticipated user growth led to a decline in its stock during after-hours trading on Wednesday. The stock had surged approximately 680% from its March 2024 IPO price of $34, reaching an all-time high last Friday. However, following the earnings announcement, shares dropped 15% to $175 before recovering slightly to $186 in extended trading.
Slower User Growth and Search Traffic Recovery
Daily active user growth slowed to 39% in Q4, down from 47% in the previous quarter. Investors have closely monitored Reddit’s relationship with Google, as search referrals significantly drive traffic to the platform. In the December quarter, Reddit reported 48 million daily users in the U.S., up 32% year-over-year but slightly below the 48.2 million reported in Q3. CEO Steve Huffman reassured investors that search traffic has already rebounded in Q1. As a result, Reddit issued a positive forecast for the current quarter, projecting revenue of $365 million at the midpoint of guidance, surpassing analyst expectations of $358 million.
Reddit Earnings and Revenue Report
Q4 2024 Earnings Performance
- Reported earnings: $0.36 per share vs. $0.25 expected.
- Revenue: $427.7 million, surpassing the $405 million forecast.
- Sales grew 71% year-over-year, accelerating from 68% in Q3.
- Net income rose to $71 million from $18.5 million a year ago, exceeding projections.
- Daily active user growth slowed to 39%, down from 47% in Q3.
Q1 2025 Outlook
- Revenue guidance: $365 million (midpoint), beating analyst expectations of $358 million.
- Adjusted EBITDA forecast: $85 million, outpacing the $73 million estimate.
Reddit Q1 Forecast
Reddit delivered strong financial results for Q4 2024, surpassing analyst expectations for both revenue and earnings. Sales grew at an accelerated pace year-over-year, while net income significantly increased. However, despite these positive figures, daily active user growth slowed compared to the previous quarter, raising concerns about user engagement. Looking ahead, Reddit provided an optimistic outlook for Q1 2025, with revenue and EBITDA projections coming in higher than analyst estimates. While the financial results were encouraging, the market’s reaction may be tempered by concerns over user growth trends.
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