Reddit shares lost more than 6% on Thursday morning as investors reacted negatively to the company’s positive earnings report. The company released its fourth quarter earnings on Thursday morning before the markets opened.
For the quarter, Reddit reported revenue of $427.7 million, better than Wall Street’s target of $404.8 million.
The company’s earnings per share results came in at $0.36 which is $0.11 better than the market’s expectations for Reddit’s bottom line results.
Going back to the company’s revenue, fourth quarter revenue reflected growth of 71.2% compared ot the same quarter last year. That revenue growth is the strongest that Reddit has been able to generate since going public in 2004.
Investors brushed off the positive accounting of Reddit’s business as they focused on one data point that didn’t impress, DAU or Daily Active Uniques. Reddit reported that DAU increased 39% year-over-year to 101.7 million, investors had been looking for a slightly higher number reflecting the website’s activity.
Short-term traders’ scrutiny of the DAU results is generating a short-term opportunity for investors with a longer view of the stock.
Today’s pullback has Reddit stock resting on two technical support features that signal a short-term buying opportunity in Reddit’s strong bullish trend.
First, the stock is finding support at the $200 price. This price is obvious round number and should help to support the short-term pullback.
Second, Reddit shares are also trading at their 20-day moving average. This short-term trendline is referred to as the “Trader’s Trendline”. As the name suggests, traders often use this trendline as a signal to buy or sell a stock.
The combination of $200 and the 20-day moving average should serve as short-term support, thus an opportunity to buy Reddit shares on this small technical dip.
A shift below this short-term support would create an even better buying opportunity for the stock at its 50-day moving average, currently trading at $178.
From a longer-term perspective, Reddit shares trade in a bull market trend and maintain a price target of $250.
