Reddit stock price bounced back on Tuesday as the company launched new artificial intelligence (AI) tools to help companies leverage conversations on its platform. RDDT jumped to a high of $145.58 on Tuesday, its highest point since May 7, and 81% above its April lows.
Why Reddit stock price soared
Reddit shares popped after the company launched the Reddit Community Intelligence (RCI), which it hopes will help to turn posts and comments into structured intelligence.
One solution launched on Tuesday is known as the listening tool that shares real-time insights to marketers to help them identify trends and launch campaigns.
Reddit also launched Conversation Summary Add-ons. This solution allows brands to show positive user content under its adverts. The company said:
“These are tools for a new era of community marketing, one where brands can tap into Reddit’s authenticity and connect meaningfully with high-intent communities around the world.”
Therefore, the Reddit stock price rose as investors anticipate that the new tools will boost its business as the AI boom intensifies.
RDDT business is doing well
Financial results show that Reddit’s business has done well in the past few years as it carved a niche in the social media industry.
Data shows that Reddit’s annual revenue rose from $228 million in 220 to over $1.3 billion in 2024. Its trailing twelve-month (TTM) revenue jumped to over $1.4 billion.
The most recent results show that Reddit’s business continued doing well in the first quarter as advertisers embraced its platform. Its revenue rose by 61% in Q1 to over $392.4 million.
The company’s gross margins rose to 90.5%, while its profitability substantially improved. Its net income jumped to $26.2 million, while the free cash flow rose to $126.6 million.
Reddit’s revenue growth has accelerated after the company’s number of users jumped. Its daily active unique users rose by 31% to 108.1 million, while the weekly active unique rose by 31% to 401.3 million.
Growth and valuation concerns
Wall Street analysts believe that the company’s business will continue rising this year. Yahoo Finance data shows that the average revenue forecast is $424.4 million, a 50% increase from the same period last year.
They expect that the company’s revenue will jump by 34% YoY in the third quarter to $470 million. The annual revenue will jump by 42% to $1.85 billion, followed by $2.37 billion.
Most importantly, analysts anticipate that the company’s profitability will continue this year. The average estimate is that its earnings per share will jump to $1.24 this year from a loss of $3.3 cents.
Read more: Top 3 reasons why I’m buying Reddit stock on recent weakness
Some analysts believe that the Reddit stock is highly overvalued since its market capitalization has jumped to over $23 billion, up from its IPO level of $6 billion.
The company has a forward non-GAAP price-to-earnings ratio of 38, higher than the sector median of 14. This figure is higher than Snap’s 29 and Meta’s 27.
Reddit share price analysis
The daily chart shows that the Reddit share price dropped and bottomed at $79.80 in April and then bounced back to a high of $145.60 on Tuesday. It moved above the key resistance level at $130, the highest swing on May 14.
RDDT stock price has moved above the 50-day and 100-day Exponential Moving Averages (EMA). The stock also moved above the upper side of the ascending triangle pattern.
Therefore, the Reddit stock price will likely continue rising as bulls target the 23.6% Fibonacci Retracement level at $185. A drop below the support at $120 will invalidate the bullish Reddit stock forecast.
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