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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.
Reddit, whose valuation is much smaller than rivals such as Meta
Platforms, was on track to increase its market capitalization by
more than $1 billion to more than $9 billion based on its
premarket share price of $56.97.
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)
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