Factors Driving Reddit’s Stock Price (NASDAQ: RDDT) Volatility

Reddit (NASDAQ: RDDT), the self-proclaimed “front page of the internet,” has seen it's stock become a bit of a battleground in recent weeks as earnings, and the momentum/risk off trend caused RDDT to plunge from highs.

The past 5 sessions have seen Reddit's stock gain 11.03%, reflecting some stability, and a recovery of sorts after the recent decline. This short-term gain is contrasted by a 23.6% decrease over the past month and a 45%+ decline since early February. The stock's 52-week range, fluctuating between $37.35 and $230.41, highlights the huge range that RDDT has moved within, and implies significant volatility. Now trading at $122 and change, the stock price remains more than $100 below the recent high, and $85 above the low.

While the analyst consensus rating leans towards “Buy,” individual price targets range widely from $75 to $235. The consensus target of $194.15 reflects significant perceived upside from the street.

Technically, the stock exhibits mixed signals. It trades above its 200-day moving average ($110.88), which can be interpreted as a long-term bullish indicator. Notably, RDDT bounced from the 200 MA, yet after the recent downturn remains firmly below its 50-day moving average ($170.56), indicating short-term weakness.

Reddit's recent financial performance provides a positive picture. The company's Q4 2024 earnings (reported February 12, 2025) surpassed expectations. The reported Earnings Per Share (EPS) was $0.36, significantly higher than the estimated $0.25. Revenue reached $427.7 million, demonstrating a strong 71% year-over-year increase.

Daily Active Uniques (DAUq) also experienced substantial growth, increasing by 39% year-over-year to 101.7 million, with this mark being the one that disappointed the street somewhat. With Google algorithm updates delivering fluctuations in user numbers, there has been a greater level of concern over user growth.

Financially, for the full year 2024, Reddit reported total revenue of $1.3 billion, a significant 61.71% increase compared to $804.03 million in 2023. Looking ahead, Reddit's Q1 2025 earnings are anticipated around May 6, 2025. Projections for revenue vary between $360 million and $370.36 million.

Strategic partnerships, notably with Intercontinental Exchange, OpenAI, and Google, aim to enhance Reddit's capabilities, particularly in AI-driven search and financial data analytics. These moves are intended to diversify income sources.

Reddit is showing strong potential for revenue growth, with some analysts expecting it to rise at a compound annual growth rate (CAGR) of 25% from 2023 to 2026. One bullish long-term projection anticipates a potential valuation exceeding $100 billion in the future, predicated on continued user growth, enhanced advertising revenue, and the development of new revenue streams. These potential new revenue streams include offerings like “Reddit Answers” (an AI summarization tool) and paid-for subreddits. The company is also planning on an expansion into 35 countries in 2025.

However, it's also important to acknowledge potential challenges. Some analysts predict slower growth due to issues such as user growth stabilisation, monetization challenges, and competition from large search engines, other social media platforms, and generative AI chatbots. There are also concerns that Reddit's unpaid moderators may demand compensation in the future. A more conservative estimate suggests that if Reddit grows at a 15% CAGR over five years, its 2028 revenue could reach $1.6 billion.

With the bear and bull camps clearly seeing Reddit very differently, the next set of earnings and data from the firm could be pivotal. The Google algorithm is again undergoing a Core update, due to complete some stage in the next few days. The results of which are something which has the potential to again shift the tide for RDDT, in either direction.