Reddit shares soar as earnings show advertising, AI licensing revenue potential

Reddit shares soar as earnings show advertising, AI licensing revenue potential

(Reuters) – Shares of Reddit soared 14% on Wednesday after the social media company surprised investors with strong revenue growth and improved profitability in its first profit since its market debut.

The company surprised Wall Street late Tuesday by announcing it could post an adjusted profit in the second quarter, and its revenue outlook was also well above estimates.

The projections follow better-than-expected results for the first three months of 2024, showing that Reddit’s efforts to expand its advertising business and content licensing deals with AI-focused companies such as Google were paying off .

“We suspected Reddit would come out strong from the start, and Reddit exceeded our bullish expectations,” Bernstein analyst Mark Shmulik said in a client note.

“Reddit appears to be reaping the benefits of a strong digital ad market, supported by some ‘free’ IPO marketing, as well as increased traffic thanks to their new favorite AI partner, Google.”

Several analysts said that, despite being founded in 2005, Reddit was still in the early stages of generating advertising revenue and should benefit in coming quarters from expanded ad targeting and measurement tools, among other things.

The more than 100,000 discussion forums, or subreddits, filled with user-generated content, ranging from history to games, have made it an attractive partner for companies looking to train their data-intensive AI models.

Reddit, whose valuation is much lower than that of competitors such as Meta Platforms, was on track to increase its market capitalization by more than $1 billion, to more than $9 billion, based on the price of its pre-market share price of $56.97.

At least 7 analysts have raised their price target on Reddit stock, pushing the median view to $55, according to LSEG data. The company priced its highly anticipated IPO at $34 in March.

Reddit is in the early stages of growing its advertising business, Piper Sandler analysts said, adding that a large international user opportunity remains untapped.

(Reporting by Aditya Soni in Bangalore; Editing by Shounak Dasgupta)

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