Reddit, Inc. (NYSE: RDDT) shares closed Tuesday at $158.42, a mere 0.5% above the company's second-quarter average repurchase price of $157.57. The narrow gap underscores the ongoing debate over the social media platform's valuation, even as its latest earnings report showcased robust revenue growth.
Financial Performance and User Metrics
In the second quarter, Reddit reported revenue of $804.9 million, a 61% year-over-year increase, marking the eighth consecutive quarter of growth above 60%. Net income surged to $252.8 million, up 183% from $89.3 million in the prior-year period. Adjusted EBITDA more than doubled to $343 million, while free cash flow reached $261 million, up 135%. Diluted earnings per share came in at $1.25, compared to $0.45 a year ago.
The company also demonstrated strong operating leverage: free cash flow margin stood at approximately 32%, and net margin improved to 31.4% from 17.9%. These figures reflect not just top-line expansion but also efficient cost management.
However, user growth in the United States, the company's most lucrative market, decelerated to 6% year-over-year, reaching 53.2 million daily active uniques. In contrast, international daily active users grew 28% to 77.1 million, but they generate significantly less revenue per user. Average revenue per U.S. user was $11.85, more than five times the $2.26 from international users.
Buyback and Market Context
During the second quarter, Reddit repurchased 1.5 million Class A shares for $235 million, at an average price of $157.57. The company holds $2.786 billion in cash and marketable securities, indicating ample capacity for further buybacks or strategic investments. The stock's proximity to the buyback level suggests management sees value at current prices, but investors remain cautious.
Chief Executive Steve Huffman highlighted the value of "real human perspective" in an increasingly automated web, pointing to sustained revenue growth. Yet he acknowledged that "search referrals were inconsistent during the quarter, and traffic swings increased toward the end of the period," a reference to ongoing uncertainties related to Google's algorithm changes.
Analyst Sentiment and Price Targets
Wall Street remains largely optimistic. Of the 23 analysts covering Reddit in the past three months, 14 rate it a Buy, 9 a Hold, and none a Sell. The average price target is $218.32, implying roughly 37.8% upside from current levels. Targets range widely from $142 to $300, reflecting divergent views on traffic risks and earnings sustainability.
Recent notable ratings include J.P. Morgan's Hold with a $185 target, Phillip Securities' Buy at $230, Roth MKM's Hold at $145, and Needham's Buy at $300. The spread highlights the uncertainty surrounding Reddit's ability to maintain growth in the face of search traffic volatility.
Risks and Outlook
Key risks include modifications to Google's search algorithms that could reduce referral traffic, shifts in advertising demand, and increased competition for user attention. The stock trades at a trailing P/E of 36.8, which offers limited cushion if user growth slows further.
Looking ahead, Reddit forecasts third-quarter revenue between $860 million and $870 million, with adjusted EBITDA expected in the range of $385 million to $395 million. The company's challenge is to demonstrate that direct user engagement and diversified traffic sources can offset any decline in search-related visits, while continuing to monetize its highly valuable U.S. user base.
