The bifurcation in the stock performance of social networking firms intensified. Meta Platforms (META) jumped after reporting strong results and raising its expenses. But Reddit (RDDT) plunged after posting quarterly results.
Investors are confident that Meta’s heavy capital expenses in AI will fuel its ad-based profit margin growth. Conversely, Reddit peaked at over $250 ahead of its fourth-quarter report. Selling did not stop afterward.
The firm posted $1.24 in EPS on revenue of $725.6 million (+69.6% Y/Y), beating expectations. It also announced a $1 billion buyback that is worth 3.3% of its market capitalization.
CEO Steven Huffman is using LLMs (AI) to help users triangulate their interests. That should increase user activity, retention, and lower the cost to acquire a user. Machine learning will result in new users getting better content feeds. The more users it adds, the more valuable the site becomes for advertisers.
Reddit Max facilitates onboarding. This results in higher productivity and performance gains where Reddit acquired lower funnel users.
Unique Forum
When the internet was used to provide free content, people could join online forums, too. That era ended. Reddit’s unlimited communities are the biggest place online for users. They no longer have any choice. This is a moat that the market is not recognizing.
RDDT stock is worth looking at again. The stock is in oversold territory and could snap back quickly.
