To The Moon

After $Reddit(RDDT)$ released its earnings, the stock initially dropped by 13% in after-hours trading but recovered to about 6% drop after the market opened.

Financial Highlights:

• DAU: 101.7 million, missing estimates of 103.1 million by 1.36%

• EPS: 36 cents vs. 25 cents expected, beating by 44%

• Revenue: $428 million vs. $405 million expected, beating by 5.68%

• Gross margin: 92.6% vs. net income margin: 16.61%.

Financial Highlights:

• Reddit surpassed $1 billion in revenue for the year, achieving 71% year-over-year growth in Q4.

  Data from Bloomberg

• Net income: $71 million, maintaining GAAP profitability for the second consecutive quarter.

  

• Advertising business continued to grow: Ad revenue increased 60% year-over-year to $394.5 million.

Investment Insights:

1. Does the DAU decline in the US really have such a big impact?

2. What are the investment concerns with Reddit?

Does the DAU decline in the US really have such a big impact?

The market had high expectations for Reddit, and any miss tends to push the stock price down. However, given the overall DAU trend and the size of the miss, a 10%+ drop seems exaggerated.

Management explained that the DAU decline was due to the impact of Google's algorithm changes on logged-out users. Reddit is recovering the losses after the market opens, which indicates the market is buying into the management’s explanation.

Specifically, U.S. logged-out users numbered 26.1 million, larger than logged-in users at 21.9 million, creating a significant impact.

Furthermore, management provided solutions.

Brian Nowak from Morgan Stanley asked about converting logged-out users to logged-in users. Huffman highlighted streamlined onboarding processes, improved search experiences, and targeted engagement efforts.

Could Reddit’s newly launched Reddit Answers and related services contribute to DAU growth?

Reddit Answers, an AI-powered tool, is designed to enhance search functionality to attract both scrollers and seekers.

Management also emphasized the rollout of machine translation in eight languages to help expand the "Rest of the World" business. Despite the miss in U.S. DAU, other regions saw strong DAU growth.

Q1 2025 revenue and EBITDA are expected to be lower than Q4:

Revenue is projected in the range of $360 million to $370 million, lower than Q4’s $428 million.

Adjusted EBITDA is expected to be in the range of $80 million to $90 million, lower than Q4’s $154 million.

Can Reddit’s newly launched AI model be monetized?

Analysts raised concerns about the timeline for monetizing Reddit Answers and scaling international ad revenue.