Soaring to new highs, Reddit’s RDDT stock has spiked more than +30% today after crushing its third-quarter expectations after market hours on Tuesday.

Standing out in a week that features much anticipated quarterly results from five of the Magnificent 7 big tech stocks, Reddit is making the case for being at a positive inflection point with RDDT sporting a Zacks Rank #2 (Buy).

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Reddit’s Strong Q3 Results

After launching its IPO earlier in the year, Reddit’s online social community platform achieved significant milestones during Q3. CEO and co-founder Steve Huffman highlighted that new levels of user traffic led to peaks in revenue growth and probability.

Daily Active Users (DAU) increased 47% year over year to 97.2 million. Taking advantage of its growing popularity, Reddit posted net income of $29.9 million or $0.16 per share. This came on sales of $348.4 million which climbed 68% from $207.5 million in the comparative quarter.

Reddit has exceeded top and bottom line expectations in each of the three quarters in which it has reported since going public posting an impressive average earnings and sales surprise of 244.1% and 11.74% respectively.

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AD Revenue Sparks Reddit’s Q3 Metrics

Ad revenue of $315.1 million was the major catalyst for Reddit’s robust growth during Q3, increasing 56% from a year ago. Other underlying financial highlights included Adjusted EBITDA of $94.1 million on a 27% margin versus -$6.9 million in the prior year quarter.

Reddit also had a positive operating cash flow of $71.6 million and free cash flow of $70.3 million compared to a loss of $7.7 million in net cash provided during Q3 2023 and -$11.6 million in free cash flow.

Reddit’s Positive Revenue Guidance

For the fourth quarter, Reddit anticipates revenue in the range of $385 million-$400 million which came in above the current Zacks Consensus of $359.99 million (Current Qtr below). Indicative of its future earnings potential, Reddit’s total sales are projected to soar 49% in fiscal 2024 and are slated to expand another 24% in FY25 to $1.49 billion, based on Zacks estimates.  

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More importantly, Reddit is expected to cross the profitability line next year with FY25 EPS forecasted at $0.05 a share. Furthermore, earnings estimate revisions for FY24 and FY25 have continued to trend higher in the last 60 days.

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Bottom Line

Based on how compelling Reddit’s financial metrics were from a year ago, the up-and-coming internet software company could be at an inflection point. Investors are certainly aware of this as well considering RDDT is now trading over $100 a share with the trend of positive earnings estimate revisions likely to continue. 

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