Could it be that Reddit surpasses Apple's valuation by 2030?
Could it be that Reddit surpasses Apple's valuation by 2030?
One of the hottest tech companies soaring at the market's peak right now is Reddit (RDDT 4.53%), witnessing a significant surge of over 170% since its March initial public offering (IPO). This increase is mainly due to its impressive earnings release in late October, with much of its growth seen post-release.
The company's impressive trajectory has propelled its market cap to surpass $24 billion, resembling the long-term growth voyage of tech titan Apple (AAPL 0.69%), currently valued at nearly $3.5 trillion. If Reddit maintains its rapid growth, it might even rival or possibly even surpass Apple's market value by the end of this decade.
A swiftly rising social media sensation
For the uninitiated, Reddit operates a digital forum where users post on and engage with numerous topics. Search engines like Alphabet's Google furnish quick solutions to queries, but often fail to provide in-depth discussions or breadth of information.
Reddit has capitalized on this gap by scaling its business. The platform generates revenue through advertising, as is common in social media, and also from licensing user data and providing premium memberships.
The third-quarter results that sent shockwaves through the market revealed a staggering 68% year-on-year growth to over $348 million. What's more, the company swung to a profit of almost $30 million from a loss of $7 million in the previous year.
Investors were ecstatic about these results not only because of the robust growth statistics but also due to the manner in which they were achieved. Reddit successfully expanded its user base, with daily average unique visitors (DAUs) skyrocketing by 47% to more than 97 million.
Even more impressive, the growth rates and total DAUs in both the company's domestic and international markets were roughly equal. Reddit is scaling globally at an impressive pace, it seems. Advertisers value such operational metrics, and a larger, consistent user base translates into increased revenue.
Additionally, although the average revenue per user (ARPU) did not grow as significantly, it still expanded by 14% globally to $3.58. In the US, it even exceeded the international ARPU by $5.88 to $1.32. As Reddit's international popularity continues to rise, its ARPU should also experience a corresponding increase.
Another promising source of revenue for Reddit is data licensing. While advertising accounted for the lion's share of the Q3 revenue (89%), the ‘other’ revenue category, which includes data licensing, surged by 547%.
Although we should not expect such tremendous growth figures moving forward, Reddit's extensive user data repository presents a lucrative opportunity for data licensing to train artificial intelligence (AI). Given AI's nascent stage, this is a significant opportunity with significant potential.
A staggering mountain to conquer
With such formidable forces aiding its rise, it's no surprise that Reddit has captured the investors' attention.
However, scaling the heights of a tech giant like Apple, aiming to surpass its $3.5 trillion valuation, is akin to climbing the world's tallest mountain. Apple's meteoric rise is the result of decades of building an unparalleled brand recognition and the development of a prosperous ecosystem around its groundbreaking product, the iPhone.
Achieving such a feat is not cheap, effortless, or swift; it requires vision, capital, and sometimes, a bit of luck. So even if we generously extend Reddit a comfortable timeline to reach Apple's peak, I still believe it won't quite reach those dizzying heights.
Management has been successful in identifying and monetizing business opportunities, but advertisers can be volatile and swiftly shift to novelties to pursue potential customers. Data licensing has considerable potential, but its full potential remains to be seen.
In conclusion, while Apple remains a colossus as compared to Reddit in both the near and mid to long-term future, this should not make Reddit a stock to dismiss. Quite the contrary; it has attracted the market's attention for all the right reasons. If Reddit continues on its current path, it has the potential to become a goliath in the social media sphere, warranting careful consideration as an investment opportunity.
After its impressive Q3 earnings report, Reddit's revenue saw a significant increase, with advertisements accounting for 89% and data licensing contributing to the remaining 11%, showing potential growth in this area. With such strong financial performance, many investors are considering investing in Reddit, seeing it as a potential competitor to tech giants.
As Reddit continues to scale globally, its user base and ad revenue are expected to increase, potentially making it a significant player in the social media market, despite the challenge of surpassing tech giants like Apple in market value.