Reddit stock zoomed 42% Wednesday after the tech firm posted a surprise quarterly profit, its first since going public last March.
Shares finished at $116.05 on trading volume more than eight times normal levels as investors registered the fact that the company is shaping up as an unexpected winner in the artificial intelligence arms race.
Earnings in the third quarter ended September 30 came in at 16 cents a share, with revenue at $348.4 million. Wall Street analysts had been expecting a loss of 7 cents a share and revenue of $314 million, according to FactSet.
Just about every metric in the quarter was up and to the right.
The number of daily active users on Reddit’s app and website increased 47% year-over-year, hitting 97.2 million. Advertising also surged 56% year to $315 million.
The most eye-opening growth, however, came in the company’s “other revenue” category. That line in the income statement captures deals Reddit has made with the likes of Google and OpenAI to license its user content for companies training AI models. Other revenue rocketed 547% over the prior-year period to $33.2 million.
A flurry of analyst reports after the numbers sought to put the quarterly report into broader context, noting the B-to-B opportunity. “Post-IPO Reddit looks like a company that’s suddenly an AI winner,” Bernstein analyst Mark Shmulik wrote, “growing ad revenues at an unprecedented clip, has a user growth cheat-code in translation + Google, and hitting years-long profitability targets in months.”
Reddit’s signature message boards and engaged communities across many verticals have attracted interest from the entertainment industry in recent years. Top movie theater circuit AMC Entertainment managed to survive the wages of Covid in part because of an influential group on the platform, WallStreetBets, which championed the stock of companies like AMC and (more famously) GameStop. Movie and TV marketers also have been including Reddit in their media plans with more regularity of late, given the cost structure. Morgan Stanley analyst Brian Nowak of Morgan Stanley wrote in a research note that the company’s “low-priced inventory (and its innovation) is enabling it to capture share.”