Reddit's Big 2024: Can the IPO Stock Maintain Its Momentum?

Reddit, the popular social media platform, had a remarkable 2024, completing an initial public offering (IPO) in March and seeing its stock soar by 250% from its first-day closing price. Investors are now wondering if the company can build on its red-hot debut and continue its impressive run in 2025.

Reddit's IPO was a resounding success, with the company pricing its offering at $34 per share. The stock surged on its first trading day, and it has continued to climb throughout the year. As of December 2024, Reddit's stock is up 26% for the month, adding to its impressive gains in November (18%) and October (81%).



Analysts have taken notice of Reddit's strong performance, with many upgrading their ratings and increasing their price targets. Needham analyst Laura Martin recently upped her price target on Reddit stock to $190, from $120, and kept Reddit as a "conviction list" name. She cited key areas driving Reddit's growth in 2025, including higher Reddit search and shopping revenues, and higher international revenues from closing the average revenue per user (ARPU) gap versus U.S. users.

Baird analyst Colin Sebastian is neutral on Reddit stock but sees near-term upside to his expectations for the company. He noted that while Reddit still falls within "experimental" ad budgets, there is a high level of interest among advertisers, which the company can unlock with platform improvements such as automation, targeting, search, and shopping ads that tap into the vast supply of conversation pages/subreddits.

Reddit's reliance on Google search for attracting users is a factor to watch in 2025. While "Reddit" was on track to be the sixth most Googled term of 2024, the company acknowledges that Google and its algorithms can "giveth and taketh away." Reddit has previewed an AI-powered feature called Reddit Answers, which aims to help people take their search queries directly to Reddit. However, Bernstein analyst Mark Shmulik recently noted that Reddit's investments in search and ad tech may offer less upside to margins going forward.

Reddit's impressive user growth and engagement have been key drivers of its success in 2024. The platform has over 430 million monthly active users and 52 million daily active users, with users spending an average of 10 minutes and 23 seconds per session. Reddit's engagement rate is 2.3 times higher than on Twitter, and the average Reddit post generates 49 comments. Popular subreddits can see over 5,000 new posts daily, with 89% of users reporting that the platform influences their purchasing decisions.

As Reddit continues to grow its user base and engagement, it is expected to see further revenue growth in 2025. The platform's projected revenue for 2024 is $750 million, with a significant portion of this revenue coming from advertising. Reddit Ads saw a 22% increase in engagement rates year-over-year, and 42% of marketers plan to increase their Reddit ad spend in 2024. The platform's cost-per-click (CPC) for ads averages $0.75, which is competitive with other social media platforms.

Reddit's expansion into new revenue streams, such as API licensing and user subscriptions, has also contributed to its overall revenue growth. In 2023, the company reported that over 90 percent of its revenues for the year came from online advertising, with the remaining 10% generated from its other revenue segment, which includes direct monetization with user subscriptions. In 2023, Reddit took its most promising step to diversify its revenue stream by monetizing access to its application programming interface (API). Third-party companies have been able to access Reddit's data for years, leading to the flourishing of Reddit client apps. Under the new content licensing plan, Reddit hopes to lure large AI and machine learning players to train their models on Reddit's data. Google was one of the first to jump on the possibility to access Reddit's human content repository for a price: in February 2024, industry sources reported Reddit had struck a licensing deal with the search engine giant for $60 million.

In conclusion, Reddit's big 2024 was driven by its impressive user growth, engagement, and revenue growth. As the company continues to expand its user base, improve its advertising platform, and diversify its revenue streams, investors can expect Reddit to maintain its momentum in 2025. With a strong foundation in place and a promising outlook, Reddit is well-positioned to build on its red-hot debut and continue its impressive run.