원문 보기
So many stocks have made incredible comebacks over the past few weeks, but there are still plenty of names that are way down from their highs earlier this year. Take Reddit. That's the popular online message board that's one of the top 10 most visited websites worldwide. While the stock sword 11% today, it's off more than a hundred bucks from its February peak of $230 and change.
I think it might be a buying opportunity here as long as you steal yourself from potentially wild ride. It is a wild trader. See, two weeks ago, Reddit reported the stunning quarter, but the stock didn't get any credit for it at all. It was in the Rodney Dangerfield zone. It got no respect. These guys delivered a phenomenal top and bottom line beat 61% revenue growth, far outpacing their 19% increase in expenses.
So, not only is Reddit growing like crazy, they're also keeping costs down, and that translates into profitability. They earned 13 cents per share. Uh Wall Street was only looking for two b two cents. Imagine 13 cents. They were looking for 2 cents. And this was their third straight quarter of unadjusted profits.
Now, despite all the hand ringing about how a softening economy might hurt the advertising market, Reddis management sounded very confident about the future. They gave strong guidance for the current quarter, talking about 50% revenue growth at the midpoint. 200% growth for earnings for interest, taxes, depreciation, amortization.
Wow. Now, you'd think the stock would have taken off in those numbers, right? But despite initially surging 18% in after hours trading, Reddit stock finished the next session down more than 4%. Why the heck did people sell this stock on such a seemingly strong number? When you look at the excuses the bears came up with, frankly, I think the selling was wrong.
Totally absurd. For example, for the first time since its IPO, Reddit's revenue growth decelerated. 61% growth may look great, but that's down from 71% growth the previous quarter. I say, are you kidding me? Reddit only grew at a 48% clip in the first quarter of 2024. That 61% number is phenomenal. What else?
While daily and weekly average users both grew 31% year-over-year in the first quarter, some analysts worry that additional growth might be harder to come by. CEO Steve Huffman, known as Red, you kind of affectionate as SPEZ, no accounting for taste there, noted that daily active users through the month of April were quote growing in the high teens range year-over-year end quote, which suggested the growth rate is slowing.
These are the same fears that sent the stock down from its highs back when they reported an emphatic beat and with strong forward guidance in midFebruary. Now again, I think it's nuts. Most companies would kill for that growth. Imagine being cautious with its user forecast. Why? Because Google keeps changing its search algorithm, which is a major driver of traffic for any website, especially Reddit.
Some of these changes are subtle, but others are more visible, like the recent introduction of AI generated summaries that attempt to answer queries directly, and let's face it, sometimes inaccurately. All this is in flux, so it's hard for Reddit to predict how many eyeballs they can attract via search.
Now, lots of people were actually skeptical about this Google algo issue. But as someone who started a website, the street.com back in 1995 and relied on Google for a lot of traffic the whole time. Every time we seem to be building up a full head of steam, Google changed its algorithm and crushed us.
Oh, I would be furious at Google. But unlike Reddit, there was nothing organic we could replace it with. And I certainly nothing I could do with Google. I am not that worried about the Google hostage issue here because the variety of draws that Reddit has. Management, for instance, reminded investors that Reddit's still the sixth most searched word on Google.
They're just behind the word news and just ahead of the word Trump. Nice bragging rights, don't you think? At least till the president finds out. Now, management acknowledged that quote the search ecosystem is under heavy construction. End quote. And that the quote near-term could be more bumpy than usual end quote.
Okay, that that didn't read well. But Reddit explains that these fluctuations are simply a byproduct of their platform's open nature. As management noted, Reddit remains quote one of the last major platforms that doesn't require you to sign in to learn something end quote. It's really one of the few sites that stills that old school inter internet vibe.
I like that. In a world that seems increasingly dominated by fake accounts, AI generated answers, and clickbait garbage. Reddit stands out as a place where you can get real answers from real people, especially for questions and scenarios that are too niche for traditional search engines like different illnesses or different hobbies.
Uh now look, that's why the platform is thriving. But beyond that, Reddit's made huge progress on the business side. In the most recent quarter, their active advertisers grew more than 50% year-over-year, driven by increased impressions and improved pricing. The company highlighted strong performance across key industri industries like pharma, as I mentioned, and you know, people who are sick tend to congregate, want to talk to each other.
I don't blame him, right? You want to kind of have that affinity group, auto, telecom, finance. You want to ask questions, there you go. Including, of course, Wall Street Bets. This is especially encouraging because after Reddit came public, there were a lot of worries about whether it could monetize its user base effectively.
Management noted that roughly 40% of its conversations on Reddit are commercial in nature, underscoring its attractiveness to advertisers. Company also is testing something called dynamic product ads. Early results show that ad these ads deliver a 90% higher return on ad spend compared to campaigns run last year.
Now, that's another sign Reddit's building on more sophisticated high performing ad performance. Red is also working on multiple product improvements aimed at enhancing the user experience like improving frankly their I got to say not so hot search function which really I kind of bewildering I find that can bring in new users while also reducing Reddit's reliance on traffic from Google the less they need to rely on outside search engines the less we need to worry about the daily average user numbers being thrown off every time Google changes the darn algorithm and they don't tell you they're going to change it but the major initiative here is Reddit answers the platform AI powered search tool which has already reached 1 million weekly users.
It began its global roll out last month, starting with Australia, then the UK. Hey, speaking of international expansion, Reddit's aiming to become a truly worldwide platform with the help of its machine translation tool, now available in 13 languages. This international push makes a lot of sense when you consider the international ad revenue grew by an astounding 83% year-over-year.
That's outpacing the 56% growth in the United States. What's even more compelling is the monetization gap. Reddit's average revenue per user internationally is just a $134 compared to $627 in America. Talk about some significant room for improvement. Despite coming up on its 20th uh year anniversary, welcome to the club.
Reddit's still in the early stages of monetizing its international user base. So, I'm confident they got a lot of room to grow. And don't worry, there's another AI angle to the story. The companies entered into contracts with generative AI outfits like Open AI, granting them access to Reddit's data API.
The API provides real time structured content from Reddit's fast archive of user generated discussions. That is an invaluable resource for training large language models that power these high tech chatbots. Oh my god, that is just a pot of gold. Imagine highlighted this in the conference call noting strong demand for their data among AI companies.
Now, this could be potentially very high margin revenue stream. Some people think it could be the highest. I wouldn't be surprised if these deals keep coming and as they are announced, this stock will go higher. In the end, there's a lot to like about Reddit, but even with the stock down huge from its February highs, it it's still trading at 54 times next year's earnings estimates.
Okay, that's not a crazy valuation given that they're on track to put up 85% earnings growth next year. And remember, with Reddit, we're just talking about unadjusted numbers. That's reasonable. But the bottom line, while I think Reddit's absolutely worth buying at these levels, even after today's monster move, stocks like these are only worth owning if you can stomach some serious volatility like we're having right now.
Keep in mind, we're always one presidential tweet or whatever you want to call it away from these kinds of names falling out of favor all over again. That's why I say Reddit's a buy, but only if you got the intestinal fortitude to stick around for the long haul. Let's take calls. Why don't we start with Tim in Kansas?
Tim. Hey Jim, how are you this afternoon? I am real good. Tim, tell me how you are. I'm great. Hey, I'm an IT professional and love super micro computers. I have 40 or 50 of them that are running zero failures with them in the last 15 years. So, I went and bought the stock when it was uh super dirt cheap and uh it went up to about 120 bucks and now it's in the dirt again and it should should I look at getting rid of it or No, no.
To tell you the truth, I mean, this one had some accounting issues. They do seem to be uh now long enough behind them that analysts are starting to recommend the stock. Again, it's relatively cheap versus the whole cohort. If you want to consider the cohort, it' be things like uh like a a core or of course an Nvidia and um and I would tell you it it is more expensive than Dell.
I do like Dell more, but I think you could do a lot more submarket. But let me tell you something. You've got more product knowledge than I do and I like what you had to say. All right. I think Reddit is worth buying these levels, but maybe not all at once. Okay? Be prepared for some volatility in the stock if you're holding on to it.
It's a wild one. Now much more made money yet major drug distributor stocks they've fallen from their recent all-time highs. I'm breaking down the post earnings action and it is very compelling. Venom doesn't mean the stocks are compelling. Then I'm analyzing some spec stocks that have caught my attention and outline my strategy for approaching these riskier names.
You probably won't like it because it involves actually making money. And of course .
Comments 0