Reddit (NYSE: RDDT) just delivered a blockbuster earnings report, crushing analyst expectations on both revenue and earnings per share (EPS). Yet, despite the strong financial performance, the stock took a nosedive in after-hours trading. So, what’s really going on here? Let’s break it down.

Strong Earnings, Strong Growth

There’s no denying it—Reddit is firing on all cylinders when it comes to its financials. The company reported Q4 revenue of $427.7 million, blowing past estimates of $405.5 million. That’s a massive 71% year-over-year increase. Earnings per share also came in well above expectations at $0.36 vs. $0.24, marking the second consecutive profitable quarter since going public in March 2024.

Advertising continues to be the dominant growth driver, with ad revenue jumping 60% YoY to $394.5 million. On top of that, international ad revenue saw an even bigger surge, up 77% YoY, particularly in the UK and EMEA regions. The company also saw improvements in its gross margin (92.6%) and free cash flow ($89.2M), signaling strong operational efficiency.

The Stock Drops—Why?

With numbers this strong, you’d expect the stock to pop. Instead, it dropped 13% in after-hours trading. The culprit? User growth concerns.

While Reddit’s daily active users (DAUq) grew 39% YoY to 101.7 million, it missed analyst expectations of 103.12 million. That shortfall, coupled with concerns about how Google’s search algorithm changes temporarily affected traffic, spooked investors. CEO Steve Huffman acknowledged the issue but reassured investors that search visibility had rebounded this quarter.

Let’s be real—growth stocks like Reddit are often judged as much on user metrics as they are on revenue. A miss on user growth, even if it’s minor, can overshadow a stellar financial performance. And after a big run-up in Reddit’s stock pre-earnings, some investors likely used this as an excuse to take profits.

Long-Term Outlook: Still Bright?

Despite the post-earnings dip, Reddit isn’t exactly in trouble. The company is projecting Q1 2025 revenue between $360M-$370M, implying another 48%-52% YoY growth, along with an adjusted EBITDA of $80M-$90M.

Reddit’s leadership is also doubling down on AI-powered search tools, international expansion, and new ad formats. AI-driven features like Reddit Answers aim to enhance engagement, while expanding into new languages is boosting international user adoption. Advertisers are also increasingly recognizing Reddit’s influence, with 40% of internet users saying Reddit impacts their purchase decisions.

What’s Next for the Stock?

From a technical standpoint, Reddit’s stock sits at $196.38, with key support around $192 and $180, and resistance near $216 and $230. If the stock breaks below support, we could see further downside, but if buyers step in, it may consolidate before another move higher.

The post-earnings selloff might look bad on the surface, but given Reddit’s strong revenue growth, improving margins, and expansion efforts, it’s hard to ignore the company’s long-term potential. If user growth stabilizes and Reddit continues executing on ad revenue and AI-driven engagement, this dip might just be a buying opportunity.

For now, all eyes will be on the next earnings report to see if Reddit can address growth concerns and maintain profitability momentum.