Reddit's stock (NYSE: RDDT) experienced a significant drop today, currently down by 7.45% despite reporting a record annual revenue increase of 71% in their fourth-quarter results. This decline followed a mixed earnings performance on EPS and daily user numbers which failed to fully meet market expectations. The stock has recaptured some of the earlier extended hours losses, where the price had fallen by more than 15%.
The company's CEO, Steve Huffman, attributed the company's miss on user numbers to changes in Google's search algorithm, which he claimed had caused volatility in user traffic. Despite this challenge, Reddit saw its revenue grow to $427.7 million, surpassing the expected $405.5 million. However, the earnings per share (EPS) stood at $0.36, falling short of the anticipated $0.48.
In terms of user engagement, Reddit's daily active users reached 101.7 million, marking a 40% increase compared to the previous year. This figure was slightly below the forecast of 103.8 million. In response to these developments, Reddit aims to advance its AI-driven search capabilities to maintain user retention and convert more visitors into active users.
Looking ahead, Reddit has set a first-quarter revenue guidance between $360 million and $370 million, with adjusted earnings ranging from $80 million to $90 million. These predictions exceed market expectations. Notably, the company has consistently exceeded revenue forecasts each quarter since becoming a public company, bolstered by strategic AI partnerships with tech giants Google and OpenAI.
Within the U.S., daily active users grew by 32% year-over-year to reach 48 million, though this was slightly less than the 48.2 million reported in the previous quarter. Analysts maintain a 12-month average price target of $199.63 for Reddit shares, pretty much on the mark of current price action.
A raft of price target increases have come in today, with JMP Securities, Morgan Stanley and Citi calling a buy the dip, or sell-off moment. Their own respective price targets were raised to $200, $210, and $220. BofA, Wells Fargo, JP Morgan, B Riley, Loop Capital, and Piper Sandler all increased their RDDT price targets today, with $185 to $222 the range of the new marks.
Whilst these upside moves can be seen as a positive indicator of analyst support, price targets can shift in a moment, as can the Google algorithm.
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