Ever scrolled through endless cat videos or gotten lost in a rabbit hole of relationship advice at 2 AM? You’re not alone. Millions of people are doing exactly that on Reddit every single day — and smart investors are starting to pay serious attention to those eyeballs.
Why Reddit’s meteoric rise is turning heads
When Reddit went public in March 2024, plenty of skeptics wondered if the self-proclaimed “front page of the internet” could translate its massive cultural footprint into actual profits. Fast forward to today, and those doubts are quickly fading into the digital ether.
Reddit shares have absolutely exploded, climbing an eye-popping 153% since its IPO. Even more impressive? While the broader market has been taking body blows lately, RDDT stock has defiantly marched upward, reaching $107.51 and delivering a stunning 38.4% return over the last six months. That’s beating the S&P 500 by a jaw-dropping 45.3%.
The million-dollar question now is whether you’ve already missed the boat or if this is still the ground floor of something much bigger.
The user growth powering the Reddit machine
At its core, Reddit’s business is beautifully simple — get more people to visit the site and spend more time there, then charge advertisers a premium to reach those engaged eyeballs. On that front, the numbers tell a compelling story.
Daily active unique users skyrocketed 31% year over year to 108.1 million in the first quarter, comfortably beating analyst expectations of 107.3 million. This wasn’t just a one-time blip either — it represents sustained organic growth that’s becoming increasingly rare in the mature social media landscape.
What’s particularly exciting for growth-hungry investors is the international expansion. While U.S. users grew at a healthy 21% to 50.1 million, international users exploded by 41% to 58 million. The company is cleverly expanding its global reach by extending its machine translation technology to 13 languages, including recent additions like Polish, Thai, Vietnamese, and Latin American Spanish.
Even with this impressive growth, Reddit executives see massive untapped potential domestically. Compared to Facebook’s 100+ million U.S. daily users, Reddit’s 50.1 million suggests there’s still plenty of room to run on home turf.
From meme platform to money machine
Remember when Reddit was just that quirky forum where people argued about Star Wars theories and shared strange photos of their pets? Those days are rapidly fading as the platform transforms into a serious advertising powerhouse.
Revenue surged 61% to $392.4 million in the first quarter, handily beating Wall Street expectations of $370 million. Ad revenue specifically jumped 61% to $358.6 million, demonstrating that brands are increasingly recognizing Reddit’s unique value proposition.
What makes Reddit particularly attractive to advertisers is the platform’s organization around specific interest communities. Unlike broader social networks where algorithms guess what users might like, Reddit users explicitly tell the platform what they’re passionate about by joining and participating in subreddits. For advertisers, this means unprecedented targeting precision.
The profitability pivot that’s shocking investors
Perhaps the most dramatic turnaround in the Reddit story is its swift march toward consistent profitability. In its most recent quarter, the company reported net income of $26.2 million, or 13 cents per share — a stunning reversal from the $575.1 million loss in the same period last year.
This marked Reddit’s third profitable quarter on a GAAP basis since going public, suggesting this isn’t just a lucky streak but the beginning of a sustainable trend. Wall Street analysts were expecting earnings of just 2 cents per share, making this a sixfold earnings surprise.
The company’s gross margin has also expanded impressively to 90.5% from 88.6% last year, putting it in the elite tier of tech companies in terms of profitability structure. When a business can keep 90 cents of every revenue dollar before operating expenses, it creates tremendous leverage for future growth.
The AI wildcard that could change everything
While the advertising business is currently driving Reddit’s growth, the company’s most intriguing long-term opportunity might lie in artificial intelligence. Reddit possesses something incredibly valuable to AI companies — nearly two decades of human conversations, debates, jokes, explanations, and stories spanning virtually every topic imaginable.
The platform represents one of the world’s largest repositories of human thought and interaction, making it invaluable training data for large language models and other AI systems. Reddit has already begun monetizing this asset through data licensing agreements with AI companies eager to improve their systems.
This AI angle gives Reddit a potential revenue stream that most traditional social media companies lack, potentially insulating it from the ups and downs of the advertising market. As AI development accelerates globally, Reddit’s data treasure trove only becomes more valuable.
What Wall Street is saying
The strong results have triggered a wave of bullish sentiment among analysts, with many raising their price targets for Reddit stock. The company’s guidance for the second quarter — projecting revenue between $410 million and $430 million — suggests management’s confidence in continuing this growth trajectory.
Perhaps most telling is that this guidance handily beats the analyst consensus of $392 million, indicating Reddit might still be surprising to the upside despite the stock’s impressive run.
The company’s free cash flow margin has expanded dramatically, rising 43.9 percentage points over recent years to reach 16.6%. This indicates Reddit is becoming less capital-intensive while generating more cash, a winning combination for long-term investors.
Is Reddit stock right for your portfolio?
With shares trading at approximately 39 times forward EV-to-EBITDA, Reddit stock isn’t cheap by traditional metrics. This premium valuation reflects high growth expectations and the company’s potential to continue disrupting the digital advertising landscape.
Whether Reddit deserves a place in your portfolio depends largely on your investment horizon and risk tolerance. For investors with a longer-term outlook who can stomach potential volatility, the company’s unique market position, robust user growth, and expanding profitability make a compelling case.
What separates Reddit from many high-flying tech stocks is that it’s already demonstrating a clear path to sustainable profitability rather than just promising future returns. The transition from burning cash to generating it has happened remarkably quickly, suggesting management’s execution capabilities shouldn’t be underestimated.
Of course, no investment comes without risks. Competition for advertising dollars remains fierce, with tech giants continually innovating to capture market share. Reddit’s continued success depends on maintaining its unique community-driven model while expanding its commercial appeal without alienating its user base.
For investors interested in exposure to both social media and the burgeoning AI sector, Reddit offers an intriguing two-for-one opportunity. The platform’s continued user growth, improving financial metrics, and unique data assets suggest this internet underdog might still have plenty of room to run.
