REDDIT jumped more than 10 per cent in extended trading after reporting quarterly sales that topped analysts’ estimates, impressing investors in its first results as a public company.
Revenue increased 48 per cent to US$243 million in the period ended Mar 31, the social media company said on Tuesday (May 7). Analysts, on average, estimated US$211.9 million, according to data compiled by Bloomberg.
Reddit’s initial public offering (IPO) in March was one of the largest on a US exchange this year, raising about US$748 million. Its strong debut was bolstered by the site’s large user base and data licensing agreements with artificial intelligence (AI) companies, which will let those firms use Reddit’s data to train its AI systems. Reddit first filed confidentially for an IPO in 2021.
The company projected revenue of US$240 million to US$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 in making the site easier to use and improvements in its ad targeting technology.
“It was a strong start to the year and a milestone quarter for Reddit and our communities,” co-founder and chief executive officer Steve Huffman said. “We see this as the beginning of a new chapter as we work towards building the next generation of Reddit.”
The shares hit a high of US$60.40 in extended trading after closing at US$49.40 in New York. While the stock got an initial boost in its first day of trading Mar 21, raising the market value of the company to about US$8 billion, it has since dropped 2 per cent.
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The text-based social media company said it now has more than 82.7 million global daily users – a jump of 37 per cent from a year earlier – who post multiple times each day to the site’s forums. Reddit was founded in 2005 before being acquired by Conde Nast a year later and then spun out as a private company again in 2011.
“Reddit’s high-20 per cent to mid-30 per cent growth in daily average users seems sustainable on the steady increase of communities and content on its platform, which has boosted its relevance for training large language models,” Mandeep Singh, a Bloomberg Intelligence senior analyst, said.
Reddit reported a net loss of US$575.1 million in the quarter compared with a loss of US$60.9 million a year earlier. Adjusted earnings before interest, taxes, depreciation and amortisation were US$10 million, compared with a loss of US$50.2 million in the quarter a year earlier.
While Reddit has been popular among users, it has struggled to reach profitability. Last year, the company reported a net loss of US$91 million on revenue of US$804 million. Historically, about 98 per cent of the company’s sales have come from advertising.
Moving forward, 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 entered into data licensing agreements worth US$203 million, with terms ranging from two to three years. Reddit reported US$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, so this is users making money from other users on Reddit,” Huffman said. Reddit users can currently make money from subscriptions, digital gifts and collectibles such as avatars.
The company also plans to increase sales by expanding internationally and translating Reddit posts to other languages, he said. About 50 per cent of Reddit’s users come to the site from outside the US, but the company expects that number to grow from 80 to 90 per cent in the future. BLOOMBERG
