Reddit is the IBD Stock Of The Day for Friday. Shares of the social media player are pushing past a cup-with-handle buy point with gains in morning action.
San Francisco-based Reddit's user forum website boasts more than 340 million weekly active users, who post across more than 100,000 Reddit communities. The 19-year-old firm completed an initial public offering in March.
On the stock market today, Reddit stock is up 4.5% to 70.57 in recent action. Friday's heavy-volume trading action is pushing shares above a 69.11 cup-with-handle buy point, as identified by IBD MarketSurge.
Reddit stock has climbed to double the value of its initial public offering price of 34 in March, with some ups and downs along the way. Reddit popped nearly 50% on its first trading day before pulling back to a mid-April low point. Shares climbed to a record high near 78 in mid-July before a late summer swoon. The social media stock bounced back with a strong September.
Reddit Ad Tools Gaining Traction?
While it has recently started licensing its content to artificial intelligence developers, Reddit's main source of revenue is digital advertising. It is a small operation compared to industry giants Alphabet and Meta Platforms. Ahead of its IPO, Reddit added tools to smooth the buying process for advertisers. Analysts see Reddit's offering gaining traction with online ad-buyers.
Piper Sandler analyst Thomas Champion rates Reddit a positive overweight with a price target of 70. In a client note Thursday Champion, citing industry metrics, said Reddit's platform "continue(s) to show sequential user growth and lower pricing," for advertising.
Analysts with Citi, meanwhile, recently called Reddit a stock to watch in digital advertising. Reddit has "quickly become one of the most talked about actors in the space," the Citi client note said, according to a description from Barron's.
The next test for Reddit will come Oct. 29, when it reports third-quarter earnings. Analysts polled by FactSet project Reddit will report a loss of 9 cents per share from sales of $309 million. That would represent a year-over-year revenue increase of 49%.
Reddit has stated its goal is to soon reach profitability on the basis of generally accepted accounting principles, or GAAP. Helped by a 54% jump in revenue, Reddit narrowed its net loss to $10.1 million in the second quarter, compared to $41.1 million a year earlier. Chief Financial Officer Drew Vollero told the Wall Street Journal last month that Reddit's "financials are inflecting and becoming very profitable, very quickly."
Analysts see GAAP profits arriving with Reddit's fourth-quarter results. The Wall Street consensus estimate, as tracked by FactSet, sees Reddit earning of 6-cents per share for its December-ending quarter.
Reddit Stock: Improving Relative Strength
Reddit stock gained 9% in September and is ahead by 6% early in October. And the stock's Relative Strength Rating has improved to 82 out of a best-possible 99. The RS Rating pits a stock's 12-month performance against all other stocks, regardless of industry group.
The cup-with-handle base is somewhat deep with a 37% depth, but IPO stocks can be volatile.
Meanwhile, Reddit stock has an IBD Composite Rating of 71 out of a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
YOU MAY ALSO LIKE:
Online Holiday Shopping Could Set Record. Amazon, Walmart Are Kicking Things Off Early.
Get Full Access To IBD Stock Lists And Ratings
Learning How To Pick Great Stocks? Read Investor's Corner
Tesla Stock Rebounds As The Robotaxi Approaches; Waymo Tops 100,000 Weekly Fares
