Reddit shares soared as much as 14% on Wednesday after the social media company showed unexpectedly strong revenue growth and improved profitability in its first earnings report since its market debut.
The social media company surprised Wall Street late Tuesday with a forecast that it may report an adjusted profit in the second quarter. In addition, the earnings outlook was also much higher than expected.
The forecast follows better-than-expected results in the first three months of 2024. It was Reddit’s first earnings report since its public debut in March with a target range of $31 to $34, valuing the company at about $6.4 billion. By the end of the trading day.
Reddit’s revenue for the quarter reached $243 million, well above LSEG’s estimate of $212.8 million and a 48% increase from $163.7 million in the year-ago period.
According to Reddit, approximately $222.7 million of this came from advertising revenue alone. This number was up 39% year-over-year, which was a higher growth rate than the company’s top competitors. CNBC Previously reported.
For reference, Meta’s ad revenue increased 27% in the first quarter, followed by Amazon’s 24% increase and Google’s parent company Alphabet’s only 13% increase.
Reddit reported a net loss of $575.1 million. Stock-based compensation expense and related taxes were $595.5 million, primarily due to initial public offerings.
“We expected Reddit to perform well from the start, and Reddit has exceeded our bullish expectations,” Bernstein analyst Mark Schmulik said in a client note.
“Reddit appears to be benefiting from increased traffic thanks to its new favorite AI partner, Google, as well as a strong digital advertising market boosted by some ‘free’ IPO marketing.” .”
For the second quarter, Reddit said it expects revenue to be between $240 million and $255 million, higher than analysts’ expectations of $224 million, according to LSEG.
The midpoint of the guidance range suggests second-quarter growth of about 32% from $183 million year-over-year, CNBC reports.
Analysts said that despite being founded in 2005, Reddit is still early in the process of generating ad revenue and will benefit from improvements in ad targeting, measurement tools and more in the coming quarters. ing.
The company’s more than 100,000 discussion forums (subreddits) are filled with user-generated content topics ranging from history to gaming, and are perfect for businesses looking to train data-intensive AI models. has become an attractive partner for
Reddit’s valuation is still much smaller than rivals such as Meta ($1.19 trillion), but it increases its market cap by more than $1 billion to more than $9 billion, based on its pre-market share price of $56.97. I was on track.
At the time of writing, Reddit stock was trading at $54.89 in pre-market trading, up more than 11% from the previous trading day.
At least seven analysts raised their price targets on Reddit stock, with the median view at $55, according to LSEG data. The company priced its long-awaited initial public offering at $34 in March.
Piper Sandler analysts said Reddit is still in the early stages of developing its advertising business, adding that a huge opportunity for international users remains untapped.
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