Stock on Reddit soars following impressive quarterly results, yet the question remains: should it be a purchase?
In a significant milestone, Reddit, the popular social media platform known for its anonymous user base and structured communities, has reported its most profitable quarter to date. The company's stock (RDDT) has seen a 43% surge in the last week following the glowing second-quarter filing.
According to the Q2 earnings report, Reddit generated $500 million in revenue, marking a 78% increase from the same period last year. The company's profit for the quarter stood at $89 million, with earnings per share (EPS) of $0.48. This represents a stark contrast to the losses of $10 million and $0.06 per share in Q2 2024.
Reddit's rapid growth continues, with a 21% increase in daily active users, reaching 110 million in the quarter. The platform's international revenue increased by 71% to $91 million, signifying a strong focus on expanding its global presence.
Embracing Machine Translation for Global Expansion
In a bid to expand further in Asia, Europe, and Latin America, Reddit is embracing machine translation. The company aims to target around two dozen languages, reflecting its commitment to a global audience.
AI-Powered Search Engine: Reddit Answers
One of the key drivers of Reddit's growth is its AI search engine, Reddit Answers. The platform, which helps users find answers and has the potential to sell advertising much like Google's search engine, saw a significant increase in users. Reddit Answers grew from 1 million users in Q1 to 6 million in Q2.
Valuation and Investment Outlook
Despite the impressive growth, Reddit's stock appears to be overvalued, having risen by 260% in the last year. Some analysts advise investors to wait for a better buying opportunity before taking a position in Reddit stock.
Steve Huffman, CEO of Reddit, wrote in a letter to investors that "in a world increasingly dominated by algorithms and automation, the need for human voices has never been greater." The company's unique approach to social media, with its emphasis on human interaction and on-topic conversations, sets it apart from platforms like Meta Platforms' Facebook and Instagram.
Looking Ahead: Q3 Revenue Guidance
Reddit has guidance for Q3 revenue of between $535 million and $545 million, representing a 55% gain from a year ago. Given the platform's strong performance in Q2, there is eagerness to see if Reddit can continue to increase its international audience and open the door for long-term revenue growth.
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