Reddit Stock Surges Following Strong Quarterly Earnings Report

Reddit (RDDT) witnessed a significant surge in its stock price, jumping as much as 5% after the release of its inaugural quarterly earnings report. The company announced better-than-expected sales growth projections for the current quarter, along with promising advancements in profitability.

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According to Reddit's statement on Tuesday, the social media platform anticipates second-quarter revenue to range between $240 million and $255 million, surpassing Wall Street's estimates of $228 million. Additionally, the company forecasts adjusted EBITDA for the current quarter to fall between $0 and $15 million, contrary to analysts' projections of a $13 million loss.

The quarterly report also revealed a notable increase in Reddit's daily active users, reaching 82.7 million, marking a 9% rise from the previous quarter and surpassing analysts' expectations.

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Citi analyst Ronald Josey expressed confidence in Reddit's performance, describing the first quarter post-IPO as robust. Josey emphasized the sustained improvement in engagement metrics as a positive sign for the company's future growth trajectory.

Following its public offering in late March, Reddit's stock initially experienced a surge but later faced a downturn, dropping from a peak of approximately $74 per share to just below $40. Concerns regarding the company's valuation and potential revenue streams contributed to the decline.

Despite the fluctuations, JPMorgan analyst Doug Anmuth described Reddit's recent performance as strong yet not overly speculative. Anmuth expects the positive trends to continue throughout the year, leading to upward revisions in revenue estimates for 2024 and 2025.

Anmuth maintained a Neutral rating on Reddit's stock while raising the price target to $57 from $47, indicating a fair valuation. Wall Street analysts highlight Reddit's potential in artificial intelligence (AI), particularly through data licensing opportunities for large language model providers.

During the earnings call, Reddit CEO and co-founder Steve Huffman emphasized the platform's extensive database, which has drawn interest from companies like Alphabet. Analysts, including Laura Martin from Needham, underscore the significance of Reddit's data in training generative AI models, predicting substantial growth potential.

Martin, who added Reddit to Needham's "conviction list" with a buy rating and a $63 price target, emphasized the platform's pricing power and its irreplaceable role in the AI landscape.

While the path to AI data licensing deals remains unclear, Huffman acknowledged increasing interest in Reddit's data for various applications. The company is exploring opportunities with both major players and smaller entities, signaling a promising future in AI-driven ventures.

Overall, Reddit's strong quarterly performance and optimistic outlook on AI prospects have positioned the company favorably for sustained growth and potential partnerships in the evolving digital landscape.

Also Read: Reddit CEO Owns Majority of Class A Shares, Filing Reveals