Reddit gains after strong sales in first report since IPO

(Bloomberg) — Shares of Reddit Inc. jumped more than 10% in extended trading after improvements to the social media platform’s advertising system helped drive better-than-expected quarterly sales in its first results as a public company.

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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 U.S. 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 allow those companies to use Reddit data to train their AI systems. Reddit confidentially filed for an IPO for the first time in 2021.

The company projected revenue of $240 million to $255 million in the current period ending in June. Analysts, on average, estimated US$227.6 million. Reddit said the growth was spurred by investments to make the site easier to use and improvements to its ad-targeting technology.

“It was a strong start to the year and a banner quarter for Reddit and our communities,” co-founder and CEO Steve Huffman said in the statement. “We see this as the start of a new chapter as we work to build the next generation of Reddit.”

Shares hit a high of $60.40 in extended trading after closing at $49.40 in New York. While shares received an initial boost on the first day of trading, March 21, bringing the company’s market value to about $8 billion, they have since fallen 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 37% jump from the previous year – who post multiple times a day on the site’s forums. Reddit was founded in 2005 before being acquired by Conde Nast a year later and then turning into a private company again in 2011.

“Reddit’s 20% to 30% growth in average daily users appears sustainable due to the steady increase in communities and content on its platform, which has increased its relevance for training large language models,” Mandeep Singh, senior analyst at Bloomberg Intelligence. , said in a note after the results were released.

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Reddit reported a net loss of $575.1 million for the quarter, compared with a loss of $60.9 million a year earlier. Adjusted earnings before interest, taxes, depreciation and amortization was $10 million, compared with a loss of $50.2 million in the year-ago quarter.

Although Reddit is popular among users, it has struggled to achieve profitability. Last year, the company reported a net loss of $91 million and revenue of $804 million. Historically, about 98% of the company’s sales have come from advertising.

In the future, 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 has 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, which is users make money from other users on Reddit,” Huffman said in an interview after the results were released. Currently, Reddit users can earn money through subscriptions, digital gifts, and collectibles like avatars.

The company also plans to increase sales by expanding internationally and translating Reddit posts into other languages, he said. About 50% of Reddit 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 short term, but over time it will allow users around the world to connect regardless of the languages ​​they speak,” Huffman said in a conference call following the earnings release.

(Updates with CEO comments in final paragraph.)

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