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Is Reddit Stock A Buy After Surging On Its Q1 Earnings Report?
https://www.investors.com/research/reddit-stock-buy-rddt/?src=A00220
SCOTT LEHTONEN07:57 AM ET 05/08/2024

Social media platform Reddit (RDDT) soared more than 120% from its IPO price following its March 21 debut. Following the successful initial public offering, is Reddit stock a buy in today's stock market?

On April 18, Reddit stock hit new lows amid the type of volatile trading often seen in new issues. Shares traded as low as 37.35 before rebounding.

Following gains in recent weeks, Reddit reported quarterly results for the first time. Revenue came in above expectations, while the company's loss was not as bad as analysts feared.

Reddit said that it lost $8.19 per share on sales of $243 million. Analysts were expecting Reddit to post a loss of $8.75 per share from sales of $214 million, according to FactSet.

Reddit stock soared nearly 12% in premarket trading Wednesday, trading around 55.20 a share.

When Reddit went public on the New York Stock Exchange, shares soared as much as 70% beyond the 34 offering price. Reddit stock closed that day at 50.31, up 48%. The opening price gave Reddit a market value of about $6.4 billion. The IPO raised $748 million.

Reddit Stock Fundamental Analysis

Reddit, founded in 2005, operates one of the world's largest and most active online message-board websites. The Reddit platform hosts a stockpile of 1 billion cumulative posts across 100,000 active communities, according to the Reddit IPO filing.

Reddit last year had sales of $804 million, up 21% from 2022. But the company lost about $91 million in 2023 and is yet to turn a profit. Reddit acknowledged in its IPO filing that it was slow to monetize its platform.

"We made a profit in the back half of 2023. We grew revenue three times as fast as costs last year," Reddit Chief Executive Steve Huffman said in a CNBC interview. "I think beyond the community of Reddit, the platform of Reddit, there is actually a very nice, special business here."

Reddit Stock Technical Analysis

Partly due to its short and volatile trading history, Reddit stock shows a weak 54 out of 99 IBD Composite Rating, according to the IBD Stock Checkup. The company's losses are another reason. The Composite Rating helps investors easily measure a stock's fundamental and technical metrics.

The stock so far has not formed a proper base. A longer correction could result in a cup base, as Reddit stock looks to build the right side of that formation.

Be sure to read how to adjust to changing market conditions, with IBD's new exposure levels.

Insiders Sell Reddit Stock

In recent weeks, Reddit CEO Steve Huffman and other top executives and board members disclosed share sales, just a week after the social network had its initial public offering.

Huffman sold 500,000 shares on March 25 at an average $32.30 price, receiving $16.15 million. CFO Vollero Andrew sold 71,765 Reddit shares for $2.318 million. Chief Operating Officer Jennifer Wong sold 514,000 shares for $16.602 million.

Chief Technology Officer Christopher Slowe sold 185,000 shares for $5.975 million. And Chief Accounting Officer Michelle Reynolds sold 3,033 RDDT shares for $97,966. Board member David Habiger sold 3,000 shares for $102,000.

All told, that's $41.245 million worth of Reddit shares sold.

Is Reddit Stock A Buy Right Now?

Despite its recent rebound, the stock remains more than 30% off its post-IPO highs.

Reddit stock is not a buy right now. Potential investors should wait for the stock to form a new base before purchasing shares.