Reddit has just released its Q4 and full-year 2024 financial results, showing strong revenue growth, improving cash flow, and rising user engagement. But before you consider adding RDDT to your portfolio, let’s break down the pros and cons to see if this stock is worth buying.
📈 The Upside: Why Reddit Could Be a Strong Investment
🚀 Impressive Revenue Growth
Reddit’s revenue is soaring—up 71% year-over-year (YoY) in Q4 to $427.7 million, with full-year revenue reaching $1.3 billion (a 62% increase). That’s fast growth, especially for a newly listed company.
- Ad revenue (which makes up most of Reddit’s earnings) jumped 50% YoY to $1.2 billion.
- Other revenue streams, including premium memberships, reached $114.7 million, hinting at potential diversification beyond ads.
💰 Profitability Is Improving
Reddit has been burning cash for years, but it’s turning a corner:
- Q4 net income: $71 million (up from just $18.5 million a year ago).
- Adjusted EBITDA: $154.3 million in Q4, an improvement of $131.2 million YoY.
- Free Cash Flow (FCF) for 2024: $215.8 million, meaning Reddit is no longer just spending—it’s making money.
📊 High Margins & Efficient Operations
Reddit’s gross margin hit 92.6% in Q4 and 90.5% for the full year. That’s impressive compared to most social media companies, proving that Reddit is scaling efficiently.
👥 User Base Is Growing Fast
Engaged users drive ad revenue, and Reddit’s Daily Active Uniques (DAUq) grew 39% YoY to 101.7 million. This kind of growth suggests advertisers will continue investing in the platform.
📉 Lower Share Dilution
Reddit’s fully diluted share count fell slightly to 206.2 million, meaning it’s managing dilution well—good news for investors worried about their stake being watered down.
⚠️ The Downside: Risks to Consider
💸 Full-Year Net Loss Still a Concern
Despite the strong Q4, Reddit posted a full-year net loss of $484.3 million. The company is improving, but it’s not consistently profitable yet—something investors need to watch.
📉 Over-Reliance on Advertising Revenue
Right now, 94% of Reddit’s revenue comes from ads. If advertisers cut spending due to economic downturns or shift to platforms like Meta or TikTok, Reddit’s revenue could take a hit.
💡 Monetisation Per User Still Lags Behind Competitors
Reddit has millions of highly engaged users, but it’s still figuring out how to make as much money per user as Meta or TikTok. Expanding premium memberships, data licensing, and other revenue streams will be key.
📊 Post-IPO Volatility
Reddit is still new to the stock market, so expect some price swings. Many social media stocks, like Snap and Facebook, took time to stabilise after going public. Investors should be ready for some turbulence in the early months.
📰 Relevant current news about Reddit:
Reddit stock drops 15% after Q4 earnings miss user growth estimates
Reddit’s stock (NYSE: RDDT) took a 15% hit on Wednesday following its Q4 2024 earnings report, as the company missed Wall Street’s user growth expectations.
📉 What happened?
- Global daily active uniques (DAUq) rose 39% year-over-year to 101.7 million. While that’s impressive growth, it fell short of the 103.1 million expected by analysts.
- The stock decline reflects investor concerns that Reddit’s ability to scale its user base may not be as strong as anticipated.
🔍 The Google algorithm effect
Reddit CEO Steve Huffman attributed some of the Q4 user growth volatility to a Google search algorithm change, which affected the platform’s traffic. However, he reassured investors that search-related traffic has since recovered in Q1 2025.
📊 What’s next for Reddit?
Despite the short-term market reaction, Reddit continues to show strong revenue growth and aims to expand internationally. If user engagement stabilises and ad revenue remains strong, investor confidence could return.
🔍 Final Thoughts: Is Reddit a Buy?
Reddit is a high-growth tech stock with strong user engagement, rising ad revenue, and improving financials. However, its reliance on advertising, ongoing net losses, and potential stock volatility mean it’s not without risks.
For long-term Kiwi investors, Reddit could be an attractive option if it continues to scale and improve profitability. For short-term traders, be prepared for price swings as the market figures out a fair valuation.
🏆 Bottom Line:
✅ Bullish Case: Strong revenue growth, improving cash flow, and a growing user base suggest long-term potential.
❌ Bearish Case: Heavy reliance on ads, full-year losses, and post-IPO uncertainty could create short-term risks.
Also, the 15% drop in share price highlights the market’s sensitivity to user growth. While Reddit’s fundamentals remain solid, investors will be watching closely to see if user numbers rebound in the coming quarters.
💡 Verdict: Do your own research, assess your risk appetite, and keep an eye on Reddit’s ability to sustain growth before making your move.
Sources:
Reddit Announces Fourth Quarter and Full Year 2024 Results
CNBC – Reddit shares drop 15% after missing user growth estimates
