Reddit Gains After Strong Sales In First Report Since IPO
Reddit Inc. jumped more than 15% in extended trading after reporting quarterly sales that topped analysts’ estimates, impressing investors in its first results as a public company.
(Bloomberg) -- Reddit Inc. shares jumped more than 10% in extended trading after improvements to the social media platform’s advertising system helped push quarterly sales higher than expected in its first results as a public company.
Revenue increased 48% to $243 million in the period ended March 31, the social media company said Tuesday in a statement. Analysts, on average, estimated $211.9 million, according to data compiled by Bloomberg.
Reddit’s initial public offering in March was one of the largest on a US exchange this year, raising about $748 million. Its strong debut was bolstered by the site’s large user base and data licensing agreements with artificial intelligence companies, which will let those firms use Reddit’s data to train its AI systems. Reddit first filed confidentially for an IPO in 2021.
The company projected revenue of $240 million to $255 million in the current period ending in June. Analysts, on average, estimated $227.6 million. Reddit said the growth was spurred by investments in making the site easier to use and improvements in its ad targeting technology.
“It was a strong start to the year and a milestone quarter for Reddit and our communities,” co-founder and Chief Executive Officer Steve Huffman said in the statement. “We see this as the beginning of a new chapter as we work toward building the next generation of Reddit.”
The shares hit a high of $60.40 in extended trading after closing at $49.40 in New York. While the stock got an initial boost in its first day of trading March 21, raising the market value of the company to about $8 billion, it has since dropped 2%.
Read More: Seven Things to Know About Reddit’s Unusual IPO
The text-based social media company said it now has more than 82.7 million global daily users — a jump of 37% from a year earlier — who post multiple times each day to the site’s forums. Reddit was founded in 2005 before being acquired by Conde Nast a year later and then spun out as a private company again in 2011.
“Reddit’s high-20% to mid-30% growth in daily average users seems sustainable on the steady increase of communities and content on its platform, which has boosted its relevance for training large language models,” Mandeep Singh, a Bloomberg Intelligence senior analyst, said in a note after the results were released.
Reddit reported a net loss of $575.1 million in the quarter compared with a loss of $60.9 million a year earlier. Adjusted earnings before interest, taxes, depreciation and amortization were $10 million, compared with a loss of $50.2 million in the quarter a year earlier.
While Reddit has been popular among users, it has struggled to reach profitability. Last year, the company reported a net loss of $91 million on revenue of $804 million. Historically, about 98% of the company’s sales have come from advertising.
Moving forward, Reddit plans to diversify its revenue streams by licensing its data to AI companies and boosting commerce on the platform. In its S-1 filing, the company said it entered into data licensing agreements worth $203 million, with terms ranging from two to three years. Reddit reported $20 million in data licensing revenue in the first quarter.
“I think the next biggest business model for us is what we call the user economy, so this is users making money from other users on Reddit,” Huffman said in an interview after the earnings release. Reddit users can currently make money from subscriptions, digital gifts and collectibles such as avatars.
The company also plans to increase sales by expanding internationally and translating Reddit posts to other languages, he said. About 50% of Reddit’s users come to the site from outside the US, but the company expects that number to grow to 80% to 90% in the future.
“We believe this will not only drive growth in the near term, but also over time will allow users from all over the world to connect regardless of the languages they speak,” Huffman said in a conference call after the results were released.
(Updates with comments from CEO in the final paragraph.)
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