Even before Reddit (NYSE:RDDT) became a publicly traded company in March 2024, internet searches were often more effective when including the term “reddit.” Aggregating user input across many subreddits on a single site has been Reddit’s core value since its launch in 2005.
It’s understandable, then, why RDDT stock generated so much hype, having reported over 108 million daily active users as of March 2025. Over the past year, RDDT shareholders have seen a 101% return on their investment. However, latecomers who acquired RDDT shares at the beginning of the year are facing a nearly 32% decline in value.
That is, if they failed to lock in profits in early February 2025, when RDDT stock reached an all-time high of $225.23 per share. Currently priced at $113, RDDT shares remain slightly above the 52-week average of $108.31.The question is, will there be a repeat of Reddit’s ATH given the reception of May’s Q1 earnings?
Recap of Reddit’s Financial Performance
Since going public, Reddit announced its first profitable quarter in Q1 2024 at $10 million, but only on an adjusted EBITDA basis. When accounting for IPO-driven losses, Reddit suffered a $575.1 million net loss in that quarter.
Nonetheless, the adjusted EBITDA basis was an improvement over the $50.2 million loss in the year-ago quarter. After another net loss in Q2 ‘24, Reddit reported its first net income of $29.9 million in Q3 ‘24, compared to the net loss of $7.4 million in the year-ago quarter .
But on a yearly basis, Reddit’s sustained profitability remains in question:
- 2022: $158.55 million net loss
- 2023: $90.82 million net loss
- 2024: $484.28 million net loss
In the latest earnings for Q1 2025 delivered on May 1st, Reddit reported revenue growth of 61% year-over-year to $392.4 million, with a net income of $26.2 million. The bulk of that revenue came from ads, at $358.6 million. Likewise, most of the revenue is still coming from the US, at $313.9 million.
However, international revenue saw a much greater 82% yearly boost, at $78.5 million. Exiting the quarter, Reddit has $126.6 million free cash flow at its disposal, a significant improvement from just $29.2 million in Q1 2024.
Overall, Reddit managed to drastically beat analyst expectations for Q1, delivering $0.13 earnings per share (EPS) vs the forecasted $0.02 EPS, making for a 550% positive surprise. Lastly, the company holds $186.8 million in current liabilities and $219.9 million in total liabilities.
Over a month, RDDT stock is now up 19%, following a price correction over the week. Similarly to memecoins, it seems that shareholders are eagerly waiting for profit-clearing opportunities. When RDDT shares climbed to $130 on Wednesday, the price level soon collapsed and now holds at $113 per share.
But when taking Reddit’s financial performance into account so far, is there another narrative to boost investor confidence?
How Reddit Stands Out from the Social Media Crowd
Across the social media landscape, from YouTube and TikTok to Reddit, discerning users may have noticed a persistent trend – auto-removal of posts. As we’ve explained in the recent coverage of AI investments into Saudi Arabia, as well as the nature of Palantir (NASDAQ:PLTR), algorithmic interception of content is becoming a norm as a prerequisite for global governance.
But this bodes well for Reddit’s bottom line. By becoming the “front page of the internet”, Reddit secured its network effect. Although individuals, organizations, and communities make X accounts thanks to Twitter’s own network effect, Reddit offers greater content permanence and participation.
To manage the constant influx of new users, new subreddits are created. And to reduce the flood of new posts, Reddit introduced karma points. In turn, karma thresholds provide a bulwark against demoralizing spam. But more importantly, users learn which kind of attitudes and ideologies are amenable to receiving karma points.
Via downvote suppression, Reddit then facilitates soft ideological control. Although this may discourage participation, it is a moot point given the overarching algorithmic interception across all social media platforms.
And although there is political bias in Reddit’s moderation practices, this is also moot because people always seek the least line of resistance. In turn, this benefits Reddit as a global content aggregator because:
- There is friction when people go the extra mile to create their own forums – only a minority will attempt.
- There is friction when people try to drive traffic to their personal website.
- There is friction when people need to create new accounts for individual websites.
Across product deployments, apps and payment fees, if any axiom is true, it is that people move away from friction. And Reddit’s single-account accessibility welcomes users despite the aforementioned moderator issues or ideological capture.
In fact, by facilitating soft ideological control via karma points, Reddit aligns with the world’s power nodes and access to capital. Likewise, this is why OpenAI and Reddit formed a partnership last May, as Reddit’s content control matches ChatGPT’s ideological proclivities.
This not only bolsters the company’s bottom line but it guards it from financial and regulatory deplatforming.
What Can RDDT Shareholders Expect from Reddit?
As a global content aggregator, Reddit will maintain its relevance for AI model training. Not only does the company have a partnership with OpenAI but a long-standing one with Alphabet (Google) (NASDAQ:GOOGL) as well.
In the recent Q1 shareholder letter, the company expects further content licensing opportunities to leverage “Reddit’s vast and unmatched archive of real, timely, and relevant human conversation on literally any topic”, as Reddit CEO Steve Huffman noted in February 2024.
It is also notable that Reddit maintains a high gross margin, beating the average gross profit margin of 64.1% in the internet content & information sector.
At the same time, Reddit has an exceedingly high price-to-earnings (P/E) ratio of 173.94 against the aforementioned sector at 33.62. However, stock price forecasting suggests that Reddit’s fundamentals justify such high valuation.
According to WSJ’s forecasting data, the average RDDT price target is significantly higher than the present level, at $161.36 per share. The bottom estimate is $75, while the ceiling price target for RDDT stock is $244.
Overwhelming number of analysts suggest buying at current price level, 16, while 9 analysts suggest holding. Only one analyst thinks RDDT stock should be sold at this point in time.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
This article was originally published on The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.