1 Social Media Stock Savvy Investors Are Watching

Reddit, often referred to as “the front page of the internet,” has a claim to fame that over 400 million monthly active users engage with it across 130,000 active communities.

There is no two ways about it, Reddit has carved out a niche in the social media landscape that is distinct from giants like Facebook and Twitter. The fanatical following among users is virtually unmatched and arguably is a moat unto itself.

And that moat appears to be widening because recent data highlights Reddit’s strong user engagement with a 12% increase in MAUs, reaching approximately 480 million.

The driver of this growth stems from the platform’s continuous improvements in user experience, expansion into international markets, and the increasing popularity of niche communities.

So, exactly how much more can Reddit grow?

Key Points

• Reddit’s monthly active users increased by 12% to 480 million, driven by improvements in user experience and international expansion.
• Advertising revenue grew by 38% to $450 million, thanks to enhanced ad targeting, new ad formats like video ads, and e-commerce integration.
• Continued international expansion, new engagement initiatives, and innovative features are set to sustain Reddit’s growth.

Top Line Is Soaring

What got investors excited about Reddit is that last year advertising revenue surged by 38% year-over-year, reaching $450 million. Reddit has made a concerted effort to increase monetization through significantly improved ad targeting and leveraging its vast data on user interests and behaviors. The result has been higher ad engagement rates and better returns for advertisers.

It’s also done a good job expanding ad formats, such as video ads and Reddit Premium, which opened new revenue streams. Video ads, in particular, have seen a 50% increase in engagement compared to traditional display ads.

And in perhaps the most surprising move, Reddit has started integrating e-commerce features to allow brands to sell directly to users within the platform. Early tests have shown promising results, with high conversion rates in specific subreddits focused on shopping and product reviews.

Yet there’s a longer runway of growth on the horizon.

What Will Keep Revenues Growing?

Reddit launched localized versions of the platform in several countries, including Germany, Japan, and Brazil.

These international markets offer substantial growth opportunities, with Reddit already seeing a 25% increase in international MAUs within the first six months of launching localized versions.

It’s also heightening engagement by introducing community awards, better moderation tools, and improved support for creators. The company’s focus on fostering positive community interactions has led to a 15% reduction in community violations and an overall improvement in user satisfaction.

Add to these the launches such as Reddit Live, which allows real-time event updates, and the integration of cryptocurrency tipping within the platform and you end up with innovations that not only attract new users but also deepen engagement among existing users.

So, Is Reddit a Buy?

At this time, 15 analysts cover Reddit and their assessment is that the stock has upside to about $66 per share. On a 5-year discounted cash flow forecast analysis, intrinsic value also sits at $66 per share. Indeed no other valuation approach appears to produce a higher target price which indicates for now Reddit has relatively limited upside potential but make no mistake about it, this is a stock to add to your watchlist.

For now, you can draw a line in the sand at that $66 level and if the share price drops from present levels to nearer the $50 mark, the reward to risk ratio starts to become highly compelling and likely worth seriously considering. Set up your notifications and alerts for when the key levels hit.