Reddit Stock: Catch a Rising Social Media Star

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Stock: Catch a Rising Social Media Star

Niche social-media platform operator

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Inc (NYSE:) isn’t new, but it’s new to Wall Street as the company just filed for its initial public offering (IPO) in February and debuted for public trading in March. Fast-forward to May 7, and all eyes were on

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to see how it would fare in its first post-IPO earnings report.

It’s amazing to see this happen, as

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was basically a secret online hideout for years. Or at least, it was secret until meme-stock traders thrust it onto the front page of the financial-news media in 2021.

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users, called Redditors, made stock-market stars out of GameStop Corp (NYSE:) and AMC Entertainment (NYSE:) a few years ago. Now the spotlight is turned back on

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, and one can hope that the social-media platform can focus on profits instead of memes.

Sharp rally, Sharp criticism

It can be debated whether RDDT stock is actually a meme stock. However, the stock had meme-like qualities upon its public debut for trading, as it rallied 48% on IPO day.

Naturally, some onlookers and commentators questioned whether

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stock’s price move was justified. The company’s full-year 2023 sales increased 20% to $804 million versus $666.7 million in 2022. However,

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reported a $90.8 million net earnings loss in 2023.

Furthermore, the company has ******* to produce a profitable year since it launched in 2005. Thus, in consideration of

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’s less-than-ideal financial track record, some commentators weren’t particularly enamored with it.

For example, Bernstein analysts led by Mark Shmulik initiated their coverage of

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stock with an Underperform rating.

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“If Pinterest (NYSE:) and Snapchat continue to struggle to live up to their potential with higher engagement/commercial intent, better ad tools… what hope does

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have with their worst-in-class engagement, anonymous user base, and NSFW (not safe for work) content?” the Bernstein analysts queried in a note.

Moreover, they called RDDT an “institutional meme stock” and expressed skepticism about the alleged promises of “profits just around the corner.” However, I can’t confirm whether

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or anyone/anything else actually promised around-the-corner profits.

It’s hard to deny that

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appeared richly valued upon its public debut, at least according to one traditional metric. Per CNBC, using the company’s market capitalization at its IPO, it had a price-to-sales (P/S) ratio of around 8. For comparison, Pinterest had a P/S ratio of 7.5 while Snap Inc’s (NYSE:) was 3.9.

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’s revenue run-up

Thus,

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had a lot to prove with its first post-IPO earnings report on Tuesday afternoon. Undoubtedly, both the bulls and the critics sought clarity on its fundamentals and evidence that it’s financially viable.

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stock jumped 13% in after-hours trading, so there’s a clue that it delivered some fodder for the bulls. Whether the company was actually profitable in the first quarter is a matter for discussion — but more on that topic in a moment.

First things first. In Q1,

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increased its daily active “uniques” (a measure of visitor traffic) by 37% year over year to 82.7 million. Therefore, it certainly appears that

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’s social-media platform was highly active in the first quarter.

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Activity can lead to advertisement revenue, and

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’s ad revenue grew 39% year over year to $222.7 million. Moreover, the company’s total revenue increased 48% year over year to $243 million; this result beat Wall Street’s consensus estimate of $212.8 million.

Was

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actually profitable?

Now for the bottom-line stats (drum roll, please). The skeptics would surely point out that

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incurred a first-quarter net earnings loss of $575.1 million. On the other hand, the company was quick to point out that this net loss was “driven by IPO expenses.”

More specifically, “Stock-based compensation expense and related taxes were $595.5 million.”

Hence, if we choose not to count the one-time IPO-related expenses, it might be posited that

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had a net profit for the quarter.

I’ll admit, I’m engaging in some mental gymnastics here. For what it’s worth, there’s another bottom-line metric that could be cited as an alternative to

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’s net income/loss.

In its quarterly press release, the company emphasized that it had its “first profitable Q1 on an adjusted EBITDA basis.” In numerical terms,

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recorded Q1-2024 adjusted EBITDA of $10 million, versus an adjusted EBITDA loss of $50.2 million in the year-earlier quarter.

Let’s not get bogged down in semantics. Regardless of whether

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should be considered first-quarter profitable or not, it undeniably recorded robust user traffic and revenue. Thus, while the pundits argue about what’s real and what’s only a meme, feel free to add a few

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shares as a speculative bet on an established but rising social media star.

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#

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#Stock #Catch #Rising #Social #Media #Star

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