Reddit (NYSE:RDDT) has been among the better performers in the social media space, at least up until July. While RDDT stock is still in the green on a year-to-date (YTD) basis, the stock had climbed more than 60% trough to peak in July before coming back to earth.
Today, RDDT stock is once again on the move lower, with shares of the social media platform provider sinking more than 6% as of this writing. This move follows the company’s highly anticipated second-quarter earnings release, in which strong growth was expected.
Impressively, Reddit beat on key metrics such as daily active users and revenue growth. These two metrics came in at 51% and 54%, respectively. That’s not shabby growth — and the numbers were ahead of expectations.
However, analysts are pointing to a potential advertising slowdown in the third quarter, which could hamper companies like Reddit in their search for continued cash flow growth. Let’s dive into what to make of the numbers and risks with Reddit.
RDDT Stock Lower After Beating Expectations With Recent Q2 Print
As is the case with most equities, backwards-looking results matter. But what most investors are concerned with right now is the forward outlook, given that much of the past growth companies like Reddit post is largely already baked into shares heading into earnings. It’s possible that the whisper numbers were higher than where analysts expected the company’s growth to come in at. But considering the impressive growth Reddit put up this past quarter, it’s clear investors are looking at the forward advertising outlook for the space and extrapolating out to a rather bearish future for RDDT.
One analyst from JPMorgan has warned of potential volatility from a coming lock-up, citing concerns that an advertising slowdown in Q3 could lead to valuation compression for this name. This analyst lowered his price target on RDDT stock to $59 per share. That’s still roughly 18% higher from here but not much higher than yesterday’s close.
I think Reddit’s recent strong monetization efforts, beats on key metrics such as DAUs, EBITDA and revenue and focus on efficiency should bode well for investors over the long term. Yes, a slowdown could be on the horizon and we’re seeing recessionary signals flash red. But if Reddit can continue to grow through whatever headwinds may be ahead, RDDT stock may be worth picking up on major dips like the one we’re seeing today.
On the date of publication, Chris MacDonald 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
