3 Reasons We're Fans of Reddit (RDDT)

What a fantastic six months it’s been for Reddit. Shares of the company have skyrocketed 112%, hitting $265.99. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Following the strength, is RDDT a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.

Why Are We Positive On Reddit?

Founded in 2005 by two University of Virginia roommates, Reddit (NYSE:RDDT) facilitates user-generated content across niche communities (called subreddits) that discuss anything from stocks to dating and memes.

1. Domestic Daily Active Visitors Skyrocket, Fueling Growth Opportunities

As a social network, Reddit generates revenue growth by increasing its user base and charging advertisers more for the ads each user is shown.

Over the last two years, Reddit’s domestic daily active visitors, a key performance metric for the company, increased by 33.7% annually to 50.3 million in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.

2. Outstanding Long-Term EPS Growth

We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Reddit’s full-year EPS flipped from negative to positive over the last three years. This is a good sign and shows it’s at an inflection point.

3. Increasing Free Cash Flow Margin Juices Financials

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Reddit’s margin expanded by 35.1 percentage points over the last few years. This is encouraging because it gives the company more optionality. Reddit’s free cash flow margin for the trailing 12 months was 23.8%.

Final Judgment

These are just a few reasons why Reddit is a cream-of-the-crop consumer internet company, and with the recent surge, the stock trades at 69.7× forward EV/EBITDA (or $265.99 per share). Is now a good time to buy despite the apparent froth? See for yourself in our comprehensive research report, it’s free.

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