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When it comes to the hottest trends in the stock market in 2024, it’s unlikely that investors will stop at social media names, or at least not for the same reasons that social media platforms should be considered. Of course, stocks like Alphabet Inc. NASDAQ: GOOGLE And Meta Platforms Inc. NASDAQ: META There was some bullish price action throughout 2024, especially towards the end; however, this was likely due to their effects on artificial intelligence.

Reddit today

$173.54 -3.20 (-1.81%)

(As of 5:45 p.m. ET)

52 week range

$37.35

▼

$182.20

Target price

$132.70

However, the technology sector is not limited to artificial intelligence. Despite the company’s focus on these trends, there is an underappreciated name that has absolutely dominated the industry and is actually just as susceptible to the impact of artificial intelligence as all the other names. Shares Reddit Inc. New York Stock Exchange: RDDT it’s up 194.3% in the last 12 months alone, but there’s enough evidence to safely suggest the stock’s rally isn’t over just yet.

By looking at a company’s key performance indicators (KPIs), investors can see early on that this stock, despite its aggressive rally throughout the year, still has a long way to go before its future growth is valued today. It’s no surprise that Wall Street analysts have also been bullish on the stock lately.

All Reddit Stock KPIs Are Gaining Momentum

Judging by Reddit’s latest quarterly results, investors can see a couple of key performance metrics that definitely stand out from the rest of the company and its peers. Revenue for the quarter reached $348.4 million, up 68% over the past 12 months. It’s worth noting that this revenue brings with it a gross margin of 90.1% thanks to the business model.

This means management has more capital to effectively invest back into the business and further monetization paths, which is essentially what Reddit’s monetization tools have recently implemented. Before investors learn more about these monetization efforts, they should learn about Reddit’s most important financial metric.

It comes from the company’s free cash flow (operating cash flow minus capital expenditures). This quarter, that figure reached $71.6 million, significantly higher than last year’s net cash outflow. This shift means that management – and business in general – is moving in the right direction, and there is reason to believe that this theme will not stop any time soon.

Driving this growth is a rise in daily active users to 97.2 million as of the latest quarter, an aggressive 47% jump over the past 12 months. Now the average revenue per user has reached $3.58, which also increased by 14% over the year. These double-digit growth rates across the board are certainly bullish for Reddit; however, greater benefits can be achieved by considering the next steps.

Reddit’s new monetization model

Reddit realized what Elon Musk did when he bought the platform formerly known as Twitter. The more data that comes into the platform in the form of words and images, the more data that can be used to train AI models that rely on those inputs. This data is just the type of raw material that larger companies need.

That’s why Meta and Google have struck deals with Reddit to pay for access to their data so the brand can seamlessly monetize its users and the content those users create. The proposal here is that since Google and its keyword suggestions rely on training large language models using data from Reddit, a new massive wave is created.

How? Reddit’s user growth rate continues to be in the double digits, and as most investors know, the more users that come to the platform, the more data is created and available for monetization from bigger names.

Knowing this, some on Wall Street decided to take the initiative and start thinking about this path to profit through ratings and valuations. This is especially true for Citigroup and Guggenheim, both of which have Buy ratings on Reddit shares as of December 2024.

Citigroup and Guggenheim’s estimates today are more like price targets of $200 and $210, respectively. In support of these new views, investors face potential stock gains of somewhere between 18.6% and 24.5% from today’s levels.

Moreover, institutional buyers from FMR LLC decided to increase their stakes in Reddit shares by a whopping 302.8% as of November 2024, bringing their net position to a high of $801.4 million today, or 6.9% ownership in the company , which should be seen as another bullish factor for investors to consider when contemplating their potential buying thesis.

Before you consider Reddit, you should hear this.

MarketBeat tracks Wall Street’s top-rated and best-performing analysts daily and the stocks they recommend to their clients. MarketBeat has identified five stocks that top analysts are quietly whispering to their clients to buy now, before the broader market takes hold… and Reddit wasn’t on the list.

While Reddit currently has a Moderate Buy analyst rating, the top-rated analysts consider these five stocks to be Strong Buys.

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