Two months in, Reddit (NYSE:RDDT) stock is considered a successful initial public offering. The stock opened at $47 per share and closed at around $50 per share, marking the first IPO of a social media site since Pinterest debuted five years ago.

Now Reddit trades at $54 a stub and has had its first earnings conference call as a public company. After a Reddit stock analysis, investors rightly wonder whether the social media platform is a stock worth investing in or merely nightmare fuel to avoid.

Growing the Public Square

Reddit believes in the power of numbers. Describing itself as a “global, digital city,” the social media site boasts over 100,000 active “communities,” which are discussion boards of niche topics.

The number of unique daily active members swelled to 82.7 million in the first quarter, a 37% year-over-year increase. The number of people using the site weekly grew even more, soaring 40% to 306.2 million.

The financial picture, though, was mixed. While revenue rose 48% to $243 million, easily beating consensus estimates of $213 million, losses were much worse than expected.

Reddit posted a loss of $8.19 per share versus Wall Street’s expectations of $6.97 per share. However, adjusted EBITDA was $10 million versus year-ago losses of $50 million.

It’s part of the reason the stock soared following the report. The social media site seems to have a strong foundation for growth and like most social media sites, builds its future on attracting advertising revenue.

It generated $2.94 in average revenue per user globally, an 8% increase over the $2.72 generated last year. 

ARPU in the U.S., its largest market, grew 3% in the first quarter, reversing a 7% decline witnessed in the fourth quarter.

Fortunately, advertisers have flooded back to social media sites after an extended period of reigning in their spending. Meta Platforms reported an 18% increase in ARPU across its platforms while Pinterest saw a 10% increase

Yet that is where Reddit’s issues begin.

Turned on But Tuned Out

Reddit admits that its business is built on engagement. It needs to keep growing its base because when it slows it is going to need to increase the time users spend on the site interacting, particularly with its advertisers.

What surprised many when looking at Reddit’s first-quarter earnings report was just how many people were not engaging with the site. Only 48% of the platform’s daily users actually logged into Reddit.

That’s important because without logging in, users can’t comment on or create posts. That means more than half of all Reddit users are just skimming through. And though logged in users grew 27% from last year, that’s actually down from the fourth quarter. 

The number of logged out DAQs, on the other hand, grew 48%. It is a particularly acute problem in the U.S. where logged out DAQ growth surged 66%!

Reddit previously noted the number of logged out users comprised 75% of the incremental growth it saw in users added. It indicates engagement is not as great as the company — or investors — want.

An Uncertain Path to Growth

Reddit’s next phase of growth is predicated on selling access to its data API and allowing artificial intelligence to train on its data. With future growth based on implementing a commerce platform and making collectibles out of avatars. 

There are significant risks here as well since growth is also contingent on expanding in international markets. The European Union, in particular though, has much more stringent and authoritarian rules on advertising and data sharing. 

Yet the social media site just announced a partnership with OpenAI, the Microsoft-backed creator of ChatGPT.

Analysts believe the deal can translate into $50 million to $60 million annually in additional revenue for Reddit as it uses OpenAI’s tools to create more features the AI site becomes an advertising partner.

There are still many unknowns for the social media platform. It has lost money since its inception and profitability is not in its immediate future.

Although it enjoyed a successful IPO, I’d be hesitant to invest here until Reddit proves it can more fully engage with its user base and move to a more firm financial footing.

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.