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Reddit beat Wall Street’s revenue expectations and raised its forecast in its first earnings announcement since its market debut, sending shares in the social media group up more than 12 per cent in after-hours trading.
Revenues for the three months to the end of March rose 48 per cent to $243mn, well above the $214mn analysts had expected, driven by strong user growth and the rapid scaling of Reddit’s nascent advertising business. Average daily active users jumped 37 per cent to a record 82.7mn.
It estimated that revenue for the three months to June would be in the range of $240mn-$255mn, also above expectations, according to data from S&P Capital IQ.
On a call with analysts, chief executive Steve Huffman said that Reddit had been investing in “product performance and quality”, in turn growing traffic.
However Jen Wong, Reddit’s chief operating officer, cautioned on the call that the company had less “visibility” into how the second half of the year would pan out, noting that the US election in November could affect the advertising market.
Net losses stood at $575mn in the first quarter compared with consensus estimates of $531mn, widening sharply from $60.9mn in the same quarter of the previous year. However Reddit said this was “driven by IPO expenses”, as it highlighted its first quarterly profit on an adjusted basis of $10mn.
In March, Reddit sold $748mn worth of shares priced at the top of its projected range, and its stock soared on its first day of trading on the New York Stock Exchange to close 48 per cent above its listing price, breathing excitement back into the muted IPO market.
Founded in 2005, Reddit has over the past few years sought to woo investors with a new ad offering and efforts to more closely police the free speech-oriented platform so that brands feel comfortable marketing there.
In its investor roadshows, it also made a push to capitalise on artificial intelligence hype by highlighting plans to sell its data to third parties such as Google and Cision so that they can train their AI models. In a letter to shareholders on Tuesday, Reddit said that while it had signed new partnerships its “data licensing and strategy continue to evolve as the size of the landscape and opportunity are still nascent”.
Huffman wrote that its investments in machine learning and AI would “continue to improve relevance, engagement and moderation” on the platform. His comments follow a double-digit drop in Meta’s shares after its earnings in April on news that the larger social media group planned to continue its AI spending spree, but expected it to take time to generate revenue from the efforts.
Huffman said that Reddit saw “huge opportunities” if it was able to improve the search function on its platform and expand its “user economy” or third party developer network.