Reddit has gotten torched over the last six months - since December 2024, its stock price has dropped 34% to $117.51 per share. This might have investors contemplating their next move.
Following the pullback, is now the time to buy RDDT? Find out in our full research report, it’s free.
Why Is Reddit a Good Business?
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 33.5% annually to 50.1 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
Analyzing the change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
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
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Reddit’s margin expanded by 38.9 percentage points over the last few years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Reddit’s free cash flow margin for the trailing 12 months was 21.6%.
Final Judgment
These are just a few reasons why Reddit is one of the best consumer internet companies out there. With the recent decline, the stock trades at 38.2× forward EV/EBITDA (or $117.51 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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