Reddit (RDDT) and Cellebrite (CLBT)
Taking a stake in Reddit (RDDT) was a good move last month, and despite the stock trading down 8% today (reported Q4 results after the close yesterday), we’re still up 15%. The company delivered revenue growth of 71.2% ($427.7 million) and adjusted EPS growth of 291% ($0.86), both of which beat expectations.
The fly in the ointment was daily average user (DAU) growth in Q4, which was “just” 39% (101.7 million). Lots of discussion around this. The short version is that Alphabet’s (GOOG) Google, which generates 40% to 50% of Reddit’s traffic, made a change to its algorithm which caused Reddit to serve comment pages to Google with comments collapsed, meaning Google couldn’t see them. I haven’t yet read anything suggesting Google targeted Reddit on this algo change, it was just one of the multiple annual changes the company makes. And it was made worse by a tech misstep on Reddit’s part. It’s worth noting that, for Reddit users who were logged in, this algo change had no impact. The issue seems to be solved, for now.
Reddit management says ad revenue growth accelerated to 60% from 56% in the previous quarter and ten of its top 15 verticals are growing faster than 50%. There remains a lot of upside potential with all the ad innovations I mentioned in my initial writeup on the company (measurement, machine learning (ML) models, etc.), with some enthusiasm now offset by a reminder of just how important the Google relationship is (and how closely the tech interfaces need to be managed).
I continue to think RDDT stock is a rare asset (exponential growth potential, profitable, etc.) that we need to own until/unless the stock breaks down and/or more bearish performance trends emerge. Therefore, keeping at buy half. Watching the 180 level as important to hold (stock as 201 mid-day Thursday). BUY HALF
Cellebrite (CLBT) reported a slightly better-than-expected Q4 before the bell this morning that highlighted 17.2% revenue growth (to $109 million) and EPS of $0.10 (a penny below Q4 2023, dilution was a factor).
Management guided for Q1 2025 revenue of $107 - $112 million (consensus was $106.2 million) and full-year revenue of $480 - $490 million (consensus was $465.6 million), implying just over 20% growth. Those metrics are all fine and leave room for beats. Expectations for FedRamp full authorization within the next two quarters are also good (federal is roughly 20% of current business, FedRamp doubles addressable market).
Management did call out the significant amount of economic uncertainty, regulatory adaptation, disruption in Washington and other macro shifts that will require vigilance to manage now, but said they expect to see policy shifts turn into a tailwind at some point. They flagged fentanyl traffic and border control as two areas where Cellebrite solutions can be a huge help. But as leadership in certain agencies changes, expanding and/or signing relationships with software vendors takes a bit of a short-term back seat.
They said the company will exit a few countries that are not material to the revenue mix (less than 2%). The company continues a CFO search. Today’s pullback brings CLBT stock back to its 50-day line and knocks out the paper gain we had going. It’s a material selloff that will stand out on the chart, though it’s worth noting that the 50-day line has provided fantastic entry points going back to last spring. Keeping at buy. Will reconsider if CLBT doesn’t firm up in the coming days. BUY
Copyright © 2025. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.
