Reddit stock surges higher on strong advertising projections

(Bloomberg/Riley Griffin) — Reddit Inc. shares jumped after the company reported its most profitable quarter to date and projected third-quarter sales that far surpassed analyst expectations, signaling the strength of its growing advertising business.

Sales for the current quarter are expected to be between $535 million and $545 million, Reddit said in a statement Thursday, with the midpoint of that range exceeding the average Wall Street estimate of $473 million. Net income was $89 million, more than double the $36 million average analyst estimate.

Reddit, which went public in March 2024, has been investing in advertising technology, hoping to grow its share of the digital advertising business dominated by industry giants Meta Platforms Inc. and Alphabet Inc.’s Google. Reddit’s advertising revenue is driven by a small number of large marketers, but the company has been focused on attracting more small- and medium-sized advertisers to reduce risk. The forum site is also building relationships internationally to diversify its roster of advertisers, said Jennifer Wong, Reddit’s chief operating officer, in an interview.

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“We’re seeing more active advertisers on our platform” Wong said. “The investments we’ve made in our sales team and in our ad stack and roadmap — well, our work is working.”

The social network posted second-quarter revenue of $500 million, compared with the $425 million analysts expected on average.

Reddit shares jumped 14% in premarket trading on Friday after closing at $160.59 in New York. They were down 1.4% so far this year before Thursday’s report.

Reddit is “finally figuring out how to monetize eyeballs, not just accumulate them,” said Jeremy Goldman, an analyst at Emarketer, in a note. “Great quarter — now let’s see if advertisers treat Reddit like a must-buy, not a nice-to-have, or if it stays the clever underdog in every media plan.”

Reddit’s vast trove of user posts has become a useful data source for larger technology companies building artificial intelligence models that power chatbots. While advertising still drives the vast majority of sales, the company has data licensing deals with OpenAI and Google, and is seeking more.

It’s also aiming to make better internal use of its own 20-year-old data repository. In December, the San Francisco-based company launched its own AI-powered chatbot called Reddit Answers, which is intended to better surface results from its forums. Wong said Reddit is primarily focused on creating internal products that can “build on that corpus of intelligence,” and the company is “still in the learning process” when it comes to making money from Reddit content with external partners. Reddit is also entrenched in a legal battle with Anthropic PBC, which Reddit alleges is illegally accessing and exploiting its data.

Reddit has 110 million daily active users, a 2% increase from the prior quarter, while Reddit Answers has 6 million weekly active users. When asked whether Reddit Answers will incorporate ads, Wong said, “the monetization opportunity I think is always there,” but that the company is currently focused developing and integrating the tool.

(Updates with premarket trading in sixth paragraph)

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