Reddit (RDDT) shares surged 14% on Wednesday after the social media platform exceeded Wall Street expectations with strong revenue growth and improving profitability in its first earnings report since going public. The company stunned investors with a forecast predicting adjusted profitability in the second quarter and a revenue outlook that surpassed estimates. The projections followed better-than-expected results for the first three months of 2024, highlighting Reddit's successful push to expand its advertising business and content licensing deals with AI-focused companies like Google (GOOGL).
"We suspected that Reddit would come out strong out of the gates, and Reddit exceeded our bullish expectations," said Bernstein analyst Mark Shmulik in a client note. He added, "Reddit appears to be reaping the benefits of a strong digital ad market, buoyed by some 'free' IPO marketing, alongside increased traffic courtesy of their new favorite AI partner Google (GOOG)." Several analysts noted that, despite being founded in 2005, Reddit remains in the early stages of monetizing its user base and could benefit from improved ad targeting and measurement tools in the coming quarters.
Market Overview:
-Reddit shares surge 14% after exceeding analyst expectations in its first quarterly report as a public company.
Key Points:
-The social media platform projects a potential adjusted profit in Q2, surpassing revenue estimates.
-Strong advertising performance and AI licensing deals with companies like Google drive Reddit's growth.
-Analysts highlight Reddit's early stage for ad monetization, indicating significant future potential.
Looking Ahead:
-Reddit's user-generated content proves valuable for AI companies, contributing to diversified revenue streams.
-The company's smaller valuation compared to Meta (META) presents an attractive investment opportunity.
-With international expansion potential, Reddit's advertising and licensing potential is poised for significant growth.
Reddit's more than 100,000 discussion forums, known as subreddits, are filled with user-generated content on topics ranging from history to gaming, making it an attractive partner for companies seeking to train data-hungry AI models. Reddit's efforts have started paying off, with advertising and AI licensing revenue driving its impressive financial results. The company's market capitalization is set to increase by over $1 billion to more than $9 billion, based on its premarket share price of $56.97.
At least seven analysts raised their price targets for Reddit's stock, pushing the median view to $55, according to LSEG data. The company priced its long-awaited initial public offering at $34 in March. Piper Sandler analysts believe Reddit is still in the early days of developing its advertising business and that there remains significant untapped potential in the international user market.
