Should you buy Reddit stock? (August 2024)

Published first at https://www.3minutebreakdowns.com
Reddit stock analysis. Ticker symbol: $RDDT

Since it’s IPO in March, Reddit stock has gained about 19% taking the company’s market value to just under $10 billion dollars. With $1.7 billion of cash and investments the enterprise value is 7.6 billion.

Revenue over the last 12 months comes to 981 million but the company is barely profitable. Net income is negative 574 million which is distorted from stock based compensation issued during the IPO. More usefully, adjusted ebitda is only 66 million and free cash only 23 million. Those numbers give Reddit a nosebleed valuation of over 300 times free cash flow and 115 times EBITDA. So its not surprising that short interest in the stock is over 13%.

However, there’s also a segment of investors who see Reddit has drastically under-monetised and therefore a business with huge potential. Reddit’s average revenue per user is under $3. Facebook by comparison is over 40.

And the nature of a platform business is that profits can be turned on quickly following revenue growth. In the first half of this year, the company grew revenue by 177 million and 135 million of that flowed straight to EBITDA. So Reddit can quickly improve its profit margins as long as top line revenue continues to grow. And it is growing. Revenue grew 21% in 2023. The trailing twelve month figure is actually showing an acceleration to 37% growth.

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