Reddit stock is soaring by more than 40% in Wednesday trading following an earnings release that one analyst called "rocket ship" results. The social media company surged past revenue estimates with 68% growth and turned its first quarterly profit as a public company.
Reddit said Tuesday it earned an adjusted 16 cents per share on sales of $348.4 million for the September-ended quarter. Analysts were projecting a 7 cent loss and revenue of $314 million, according to FactSet.
This is the third time Reddit has posted quarterly earnings since the company completed an initial public offering in March. On a call with analysts, company officials said Reddit's growth is powered by the user-forum sites growing utility for people seeking out answers.
"Reddit's influence continues to grow across the broader internet," Chief Executive Steve Huffman said on the call. "In 2024, so far, the word Reddit was the sixth most Googled word in the United States, underscoring that when people are looking for answers, advice or community, they seek out Reddit specifically."
The results add to a strong first year on the stock market for Reddit. Reddit stock soared more than 40% to close 116.03 on the stock market today, Shares have now gained more than 135% from Reddit's first-day closing price in March.
Futures: Google, Reddit Leads Earnings Movers
Reddit Daily Users Up 47%
Reddit's sales growth was helped by a 47% year-over-year jump in daily active unique users on the app and website, to 97.2 million.
Revenue from selling advertising increased 56% year over year to $315 million. Meanwhile, Reddit's "other revenue" category rocketed 547% to $33.2 million. The social media firm has reached deals with companies such as Google and OpenAI to license its user content to train AI models.
Bernstein analysts published a note Wednesday on Reddit's results titled 'r/rocketship," a nod to the naming style of Reddit's trove of more than 100,000 active communities, or subreddits. Reddit is offering investors a "Dr. Jekyll and Mr. Hyde story," Bernstein analyst Mark Shmulik added.
"Pre-IPO Reddit felt stuck unable to grow users or monetize the platform or viewed as real business — this is Mr. Hyde," Shmulik wrote to clients. "But post-IPO Reddit looks like a company that's suddenly an AI winner, growing ad revenues at an unprecedented clip, has a user growth cheat-code in translation + Google, and hitting yearslong profitability targets in months — this Dr. Jekyll."
Shmulik maintained an underperform rating, however, calling Reddit an "expensive" stock.
Reddit Forecasts Strong Growth In Q4
Reddit's sales forecast also easily topped estimates. Reddit guided for sales of $392.5 million at the midpoint of its range for the last three months of the year. Analysts were projecting Reddit would tally $360 million in sales for the period prior to Reddit's guidance, according to FactSet.
Reddit also projected it would reach $110 million to $125 million in adjusted earnings before interest, taxes, depreciation and amortization (or EBITDA) for Q4. Analysts were looking for $87 million in adjusted EBITDA for Reddit's fourth quarter, according to FactSet.
"The current industry environment feel stable and we are benefiting from structural improvements we have made to the core ad business that have sustained differentiated growth over the past quarters," Chief Operating Officer Jen Wong told analysts late Tuesday.
Jefferies analyst John Colantuoni reiterated a buy rating and moved his price target for Reddit stock up to 120, from 100, following the report.
"Reddit delivered a fourth straight acceleration in advertising revenue growth, underscoring a nascent monetization opportunity and supporting our outlook for attractive growth even if user growth slows," Colantuoni
Reddit Stock's Technical Ratings
Coming into the report, Reddit stock had an IBD Composite Rating of 87 out of a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
Further, Reddit's IBD Relative Strength Rating was 94 out of 99. The RS Rating means that Reddit has outperformed 94% of all stocks in IBD's database over the past year.
