A Seeking Alpha contributor upgraded Reddit (RDDT) to a "Strong Buy" following a sharp sell-off. Reddit's stock had fallen nearly 45% from its October highs. This occurred despite strong Q3 earnings, as the company warned about slowing user growth.
Concerns over changes to Google's search algorithm triggered the price drop. These changes reduced referral traffic to the platform. On October 29, Reddit reported its Q3 earnings. Management noted U.S. daily active uniques (DAUq) declined 2% year-over-year. The company warned of a potential further drop in overall users.
The bullish analysis highlights Reddit’s strong fundamentals despite user growth headwinds. The company reported a 53% year-over-year revenue increase in the third quarter. Net profit rose 70% in the third quarter. The author cites strong monetization, high free cash flow margins, and a low-capex business model. These factors make the stock an undervalued opportunity.