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

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(Reuters) -Reddit soared as much as 11% in early trading on Wednesday after the social media firm floored investors with strong revenue growth and improving profitability in the first earnings since its market debut.

The company surprised Wall Street late on Tuesday with a forecast that it could post an adjusted profit in the second quarter, and its revenue outlook was also far above estimates.

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

“We suspected that Reddit would come out strong out of the gates, 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, buoyed by some ‘free’ IPO marketing, alongside increased traffic courtesy of their new favorite AI partner Google.”

Several analysts have said that despite being founded in 2005, Reddit was still in early stages of the process to generate ad revenue and should benefit in the coming quarters from expanded ad targeting and measurement tools, among others.

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

At least 7 analysts raised their price target on Reddit’s stock, pushing the median view to $55, according to LSEG data. The company priced its much-awaited initial public offering at $34 in March.

Reddit remains in early days of developing its ads business, Piper Sandler analysts said, adding that a large international user opportunity remains untapped.

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