Reddit Inc (NYSE: RDDT) opened about 8.0% down on Friday after Tencent Holdings unloaded about $88.5 million shares of the forum social network.
The weakness may also be related to a report that Advance Magazine Publishers is considering trimming its position on Reddit as well.
Still, there are three solid reasons to consider loading up on Reddit stock on the recent sell-off. Let’s take a look at each of them individually.
Reddit stock price is backed by solid financials
Reddit has already turned a quarterly profit even though it hasn’t even been a year since it went public.
More importantly, the forum social network is attracting users at an unparalleled rate. Its daily active users went up another 47% on a year-over-year basis to 97.2 million in Q3.
That’s significant since more users will likely drive more advertisers to the platform – and more advertisers will continue to drive the company’s bottom line over the coming quarters.
Reddit topped Street estimates for all metrics in its latest report. Profit, revenue, daily active users, average revenue per user, you name it – this company surpassed all of them in Q3.
That speaks volumes about the state of business and what the future may hold for Reddit stock.
RDDT could benefit from AI tailwinds
Reddit stock is trading at a significant premium at writing but it may continue to justify it as RDDT is uniquely positioned to benefit from the AI frenzy.
On top of stealing ad spend from X (formerly Twitter), it’s selling data to big tech names and helping them train their large language models.
Reddit already has a deal in place with Google and OpenAI – and will likely secure similar deals with others as users continue to register on its online platform over the next few quarters.
Note that Statista estimates the artificial intelligence market to grow at a compound annualized rate of over 28% through the end of this decade which confirms AI as a meaningful potential tailwind for RDDT.
Reddit stock does not, however, pay a dividend.
Reddit is catering to an international audience
Reddit is also tapping on artificial intelligence to translate the wealth of data on its forum social network from English to a whole bunch of other languages.
That exposes it to an international audience and positions it to become a significantly bigger platform over the next five years. Steve Huffman – the company’s chief executive told investors in the earnings press release last month:
Reddit continues to be one of the most visited and trusted sites in the world with opportunities available to us that aren’t available to most companies.
Wall Street currently has a consensus “overweight” rating on Reddit stock, suggesting they continue to see further upside despite its massive year-to-date run.
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