However, the technology sector is not limited to artificial intelligence. Even though its attention has been focused on these trends, there is an underrated name that has absolutely dominated the industry and is actually just as exposed to artificial intelligence as all these other names. Shares of Reddit Inc. (NYSE: RDDT) have gone on a massive 194.3% rally over the past 12 months alone, but there is enough evidence to safely assume that the stock’s run isn’t over yet.
After looking at the company’s key performance indicators (KPIs), investors can see from the beginning how this stock, despite its aggressive rally over the year, still could have a long way to go until its future growth is priced today. It shouldn’t come as a surprise to see Wall Street analysts also be willing to express their bullish views on the stock recently.
All KPIs for Reddit Stock Running are Running Hot
As of Reddit’s latest quarterly earnings results, investors can see a couple of KPIs that definitely stand out from the rest of the pack and its peers. Revenue for the quarter reached $348.4 million, an increase of 68% over the past 12 months. It is worth mentioning that this revenue carries with it a 90.1% gross margin due to the business model.
That means management has more capital available to effectively invest back into the business and further monetization routes, which have, in fact, been implemented recently into Reddit’s avenues of monetization. Before investors learn more about these monetization measures, they should know about Reddit's most important financial metric.
It comes through the company’s free cash flow (operating cash flow minus capital expenditures). This metric reached up to $71.6 million this quarter, up massively from last year’s net cash outflow. That shift means that management – and the business as a whole – is going in the right direction, and there are reasons to believe this theme won’t stop soon.
Driving this growth is the daily active user growth to 97.2 million as of the latest quarter, an aggressive jump of 47% over the past 12 months. Now, the average revenue per user has reached $3.58, which is up by 14% in the year as well. These double-digit growth rates across the board are undoubtedly bullish for Reddit; however, earning the big payoffs comes through figuring out the next steps.
Reddit’s New Monetization Model
Reddit realized what Elon Musk did when he bought the platform formerly known as Twitter. The more data that comes into the platform through words and images, the more data can be used to train artificial intelligence models that rely on these inputs. This data is just the type of raw materials that the bigger names need.
That is why Meta and Google have entered into agreements with Reddit to pay for access to their data so that the brand can monetize their users and the content these users create seamlessly. The proposal here is that, as Google and its keyword offer rely on training large language models through data from Reddit, a new massive wave is created.
How? Reddit’s user growth is still pushing double-digit growth rates, and as most investors know, the more users come onto the platform, the more data is produced and available for monetization from the bigger names.
Knowing this, some on Wall Street decided to take the initiative and start reflecting on this profit route through ratings and valuations. Particularly those at Citigroup and Guggenheim, both of which see a Buy rating for Reddit stock as of December 2024.
Valuations from Citigroup and Guggenheim today look more like a $200 and $210 price target, respectively. To prove these new views, investors face a potential rally of anywhere between 18.6% and 24.5% from where the stock trades today.
More than that, institutional buyers from FMR LLC decided to boost their holdings in Reddit stock by as much as 302.8% as of November 2024, bringing their net position to a high of $801.4 million today, or 6.9% ownership in the company, which should be taken as another bullish factor for investors to consider when coming up with their potential buy theses.
The article "Reddit Stock Dominated 2024—Why the Rally Isn’t Over Yet" first appeared on MarketBeat.
