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Reddit beat Wall Street’s revenue expectations and raised its forecast in its first earnings release since its market debut, sending shares of the social media group up more than 12 percent in after-hours trading.
Revenue rose 48 percent to $243 million in the three months ended March, well ahead of analysts’ expectations of $214 million, driven by strong user growth and rapid scaling of Reddit’s nascent advertising business . Average daily active users rose 37 percent to a record 82.7 million.
According to data from S&P Capital IQ, revenue for the three months through June would be between $240 million and $255 million, also above expectations.
In a call with analysts, CEO Steve Huffman said Reddit has invested in “product performance and quality” to drive traffic.
However, Jen Wong, Reddit’s chief operating officer, warned on the call that the company has less “insight” into how the second half of the year will pan out, noting that the U.S. election in November could have an impact on the advertising market.
Net losses were $575 million in the first quarter, compared to consensus estimates of $531 million, up significantly from $60.9 million in the year-ago quarter. However, Reddit said this was “due to IPO costs” as the company highlighted its first quarterly profit on an adjusted basis of $10 million.
In March, Reddit sold $748 million worth of shares at the top of its forecast price range, and the stock surged on its first day of trading on the New York Stock Exchange, closing 48 percent above its listing price, stirring renewed excitement in a subdued IPO market .
Founded in 2005, Reddit has in recent years sought to woo investors with a new advertising offering and tighten its oversight of the free-speech-focused platform to make brands feel comfortable marketing there.
In its investor roadshows, the company also made moves to capitalize on the artificial intelligence hype by highlighting plans to sell its data to third parties like Google and Cision so they can train their AI models. In a letter to shareholders on Tuesday, Reddit said that despite signing new partnerships, its data licensing and data strategy are “evolving as the size of the landscape and opportunities are still emerging.”
Huffman wrote that its investments in machine learning and AI would “further improve relevance, engagement and moderation” on the platform. His comments followed a double-digit decline in Meta shares after earnings in April after news that the larger social media company planned to continue its AI buying spree but expected it would take some time to get out of it revenue would be generated.
Huffman said Reddit sees “huge opportunity” if it can improve search on its platform and expand its “user economy,” or third-party developer network.