Reddit’s Stock Soars After Positive Earnings Report
In a notable turnaround, Reddit Inc. (RDDT) saw its shares rise by 6.5% in extended trading following impressive earnings results for the first quarter, surpassing Wall Street’s expectations. The social media platform reported significant growth in daily active unique users, revenue, and profit, indicating a positive trajectory for the company.
User Engagement on the Rise
Reddit’s daily active unique users surged by 31% year-over-year, reaching 108.1 million. Analysts had anticipated a smaller increase, projecting 107.3 million daily active users. This marked a drastic improvement from the previous quarter, during which the stock had dropped due to a disappointing user growth report.
Reddit defines a daily active unique user as one identifiable with a unique identifier that visits the Reddit website or opens its application at least once within a 24-hour period. Internationally, daily active unique users experienced an even more notable growth rate of 41%, totaling 58 million users, while the U.S. user count increased by 21% to 50.1 million.
Strategic Growth Initiatives
Drew Vollero, Reddit’s Chief Financial Officer, indicated that there remains significant opportunity for growth within the U.S. user base. He highlighted that major social media players like Meta Platforms, Inc. (META) boast a robust U.S. active user count of over 100 million. “There’s certainly headwind in the U.S. for sure,” Vollero stated. However, he emphasized their strategy for improvement through user onboarding and refined features such as Reddit Answers, an AI-driven tool aimed at enhancing user experience.
Moreover, Reddit has expanded its Machine Translation capabilities to 13 languages, boosting its ability to connect with global audiences—up from eight in the previous quarter. This expansion now includes new languages like Polish, Thai, Vietnamese, and a variation of Latin American Spanish. Vollero noted, “Historically, international has been the fastest grower for us over the last couple of quarters—there’s a nice tailwind with Machine Translation.”
Strong Financial Performance
Reddit’s reported quarterly profit was its third on a GAAP basis since its IPO in March 2024. The company recorded a net income of $26.2 million or 13 cents per share, a significant recovery from a net loss of $575.1 million or $8.19 per share in the same quarter last year. Analysts had expected earnings of just 2 cents per share.
Revenue increased by 61% to $392.4 million, exceeding the FactSet consensus estimate of $370 million. Advertising revenue also climbed 61%, totaling $358.6 million, with the company achieving a gross margin expansion from 88.6% to 90.5%. For the upcoming second quarter, Reddit forecasts revenue between $410 million and $430 million, further outpacing the FactSet consensus estimate of $392 million, which reflects the strength of its advertising business.
Market Position Amid Economic Uncertainty
While many companies, such as Snap Inc. (SNAP), have expressed caution regarding the macroeconomic landscape impacting advertising, Reddit remains optimistic. Chief Operating Officer Jen Wong commented, “While there is a lot of uncertainty in the market, so far, it’s business as usual.” She highlighted that during turbulent times, Reddit serves as an important resource for users, stating, “[People] come to Reddit to navigate that.”
Overall, Reddit expects adjusted earnings before interest, taxes, depreciation, and amortization in the range of $110 million to $130 million. Notably, Reddit shares have soared by 153.4% since the company went public last year, reflecting growing investor confidence amid its impressive performance metrics.
Conclusion
As Reddit continues to expand its user base and refine its advertising strategies, it appears well-positioned to weather market uncertainties and capitalize on growth opportunities. Investors will be keenly watching the company’s trajectory as it aims to enhance user engagement and drive robust financial results in the coming quarters.