Revenue was $427.7 million, an increase of 71% YoY, 22.7% QoQ
Gross margin was 92.6%, an improvement of 420 basis points from the prior year
GAAP Profitable with Net Income of $71.0 million and net margin of 16.6%, an improvement of $52.5 million from the prior year
Adjusted EBITDA¹ was $154.3 million and Adjusted EBITDA margin was 36.1%, an improvement of $131.2 million from the prior year
Operating cash flow was $90.0 million, an improvement of $107.4 million from the prior year
Free Cash Flow² was $89.2 million, an improvement of $111.2 million from the prior year
Basic and diluted earnings per share (“EPS”) were $0.40 and $0.36, respectively
Capital expenditures were $0.8 million, 0.2% of revenue
Cash, cash equivalents, and marketable securities were $1.84 billion as of December 31, 2024
Total fully diluted shares outstanding were 206.2 million as of December 31, 2024, down 0.1% from the prior quarter
They have a unique feature allowing users of the platform to ask questions that they answer on the call and later with the CEO,COO, and CFO.
Its down 15% and the only negative article I see is talking about how it missed on user growth with 101.7M DAUq vs 103.1M estimate. They mentioned that a google shift caused some issue with user acquisition but they were able to handle it. They also are guiding for a contraction in Q1 by 13.5% from Q4 but that tracks with the seasonality of an advertising business especially coming out of an election year.
Looks like they reported a lot of cost increases, which triggered the AH sell-off.
-Total costs and expenses in Q4 surged 52% to $374.8M, led by a 69% increase in R&D expenses to $188.6M.
-Net income for the three months ended December 31 was $71M compared to $19M a year ago. However, the net loss for 2024 increased fivefold to $484.3M from last year, due to IPO-related expenses, the company said.
Hopefully it’s just temporary and leads to more growth.
Their shareholder letter had this to say about the user miss:
“Later in Q4, we experienced some volatility with Google Search triggered by a periodic algorithm
change, but traffic from search has recovered so far in Q1, and we’ve regained momentum. What
happened wasn’t unusual—referrals from search fluctuate from time to time, and they primarily affect logged-out users. Our teams have navigated numerous algorithm updates and did an excellent job adapting to these latest changes effectively. This particular swing was interesting, though, because we saw a corresponding increase in the query term “reddit,” which suggests users are searching with the specific intent of reaching Reddit, and this propensity continues to rise.”
Does anyone ever go directly through Reddit or do you usually use google and find it while searching? It always comes up in my google search but I never thought about going directly there.
Was anyone else very concerned about the revenue guide? Seasonality, sure for Q4, but the Q1 guide at the midpoint is only 5% above Q3 revenue. Ok, they would still have had political advertising and then the Olympics in Q3…ok. So is that truly what was driving the growth story these last few quarters, and $360-$370 is now the baseline? What’s the growth rate going to be without big once-in-4-years media events?
The reason I didn’t invest in Reddit when they IPOd is that it’s very much not a new company to advertisers/brands and I was dubious how well they would be growing at such a large user base. While they are now focused much more on monetizing than they once were, I don’t know if that will be good enough. It’s going to take increased attention from both audiences and marketers, which requires investment, not just a dependency on search rankings. They will likely need to deposition Meta/TikTok, they may need some significant product updates…
Maybe I am overreacting, assuming and maybe they are just sandbagging, but the bear case in my mind seems to have played out in the guide. I sold 2/3 of my shares and will likely sell the last third tomorrow.
I do have concern about the guide as well. It’s very likely that Reddit’s YoY revenue growth rate has peaked in Q4 and will start to decline based on that. That being said, the report was still pretty good IMO. It’s just hard to justify Reddit’s valuation now. I have a belief that Reddit should not be valued more expensive than the early stage Facebook, because
They have similar business model but Facebook was the first mover when it did not have any big competitors.
Facebook’s product format is more rich and diverse than Reddit and could naturally drive more user engagement time, which then provides more monetiztion opportunities.
As a comparison, Facebook’s peak PS ratio in 2013 was about 18, while Reddit’s is almost 30.
I could be wrong though. I’m sure Reddit’s share price will continue to increase, but I think the potential return is not as attractive as many other companies we discuss on this board.
I use reddit and sometimes I go directly to Reddit. Sometimes I search Reddit via google by adding Reddit to the end of my search. I find that google sometimes has better searches to find what I’m looking for than Reddit. Which is one of the reasons Reddit is investing in their search function.
I was at first worried about it but Q1 has historically been Reddit’s worst quarter by far. If they just hit their high guidance they will have revenue growth 52% YoY. They also have a history of beating their high end of guidance.
Reddit has a huge potential because of what it offers. It allows users to freely talk about anything. For example my Wife will research almost all of her purchases on Reddit before buying it. Negative posts on reddit has stopped her from buying something before. Positive posts have convinced her to buy something. The COO said something similar in the earnings call.
I think Reddit is a place where people are going to for specific recommendations on what to buy, to make decisions. And what Reddit Answers does is reveal the recommendation in a way that shows what’s the opinions across all of Reddit. And that’s an incredible opportunity because, if you think about search, search is incredibly high-intent and people are really in the mindset of wanting to convert on that recommendation. So the more that we build experiences like Reddit Answers that put people in a mindset of recommendations and thinking about what they want to buy, the bigger the opportunity is for us to provide, to bring in a brand or a marketer to meet that demand and drive that into an action.
When I mentioned that ELF was a stock that the board was interested in, my wife informed me that Reddit was talking about how good it was and the quality has gone way up and its becoming popular because the price to quality was good. After that I started researching companies that the board mentions. A paper was published in August 2024 how reddit comments can predict stock price. Which is another avenue Reddit can make money selling its highly valuable data.
Overall, I think Reddit is different from other large social media companies because it gives the power of anonymity and people will speak their mind. This gives Reddit access to the data of what people think is important.