Technology drags stocks lower as rally stalls

Reddit (RDDT) stock rose as much as 5% on Wednesday after the company said in its first-ever quarterly earnings report that it expects better-than-expected growth in sales in the current quarter and further progress in profitability.

Reddit said In its release on Tuesday It expects second-quarter revenue in the range of $240 million to $255 million, above Wall Street estimates of $228 million. The social media company also said it sees adjusted EBITDA in the current quarter in the range of $0 million to $15 million. The Street was expecting a loss of $13 million.

Daily active users on Reddit reached 82.7 million, up 9% from the previous quarter and faster than analysts expected.

“Reddit had a strong post-IPO Q1 performance, in our view,” Citi analyst Ronald Guzzi wrote in a note to clients on Wednesday. “More importantly, we believe that improving engagement trends is permanent.”

After initially surging following its public offering in late March, Reddit shares fell in the following weeks, falling from a peak of around $74 per share to just under $40 as concerns grew about the company's high valuation and potential future revenue streams.

But the report from the company that once hosted fodder for meme stock targets highlights a trend seen recently in other names favored by retailers. Reddit stock is moving higher after JPMorgan analyst Doug Anmuth called the quarter “strong,” but it's not rising to a point that is difficult for analysts to understand.

“We expect trends to remain strong through the year given the recent tailwinds, and are raising our 2024 and 2025 revenue estimates by 11% and 12%, respectively,” Anmuth wrote.

Anmuth maintained a nervous rating on the stock while raising his price target to $57 from $47, noting that shares appear to be “fairly valued” at the moment.

Read more about Reddit's AI opportunities here.