Reddit Shares Surge 22% on Earnings Beat and Optimistic Forecast

Reddit reported third-quarter results that exceeded analyst expectations. The company’s forecast for the fourth quarter was also better than anticipated. In August, Reddit CEO Steve Huffman said the company has been making it easier for new users to create accounts.

Reddit’s stock jumped 22% in after-hours trading on Tuesday, surpassing $100 for the first time. This surge was driven by the company’s third-quarter results, which topped analyst estimates, along with an optimistic outlook for the current quarter.

Here’s how the company performed compared to LSEG estimates:

Earnings per share: $0.16 vs. an expected loss of $0.07

Revenue: $348.4 million vs. $312.8 million expected

Reddit expects fourth-quarter revenue to be between $385 million and $400 million, above the average analyst estimate of $357.9 million.

Adjusted earnings for Q4 are projected to be between $110 million and $125 million, higher than the average estimate of $85.2 million.

Third-quarter revenue grew 68% year-over-year, and the company turned profitable, reporting net income of $29.9 million, compared to a net loss of $7.4 million in the same quarter last year.

The company also reported a 47% increase in daily active users (DAUs) year-over-year in Q3, reaching 97.2 million, surpassing analyst expectations of 96.5 million.

Average revenue per user (ARPU) was $3.58 for the third quarter, exceeding analyst estimates of $3.24.

“It was another strong quarter for Reddit and our communities as we reached important milestones, including record levels of user traffic, revenue growth, and profitability,” Reddit CEO Steve Huffman said in a statement.

This is Reddit’s third earnings release since its IPO in March. Based on after-hours trading, the stock has nearly tripled since its initial public offering. At the close, Reddit's market cap stood at $13.6 billion.

Since last year, Reddit has benefited from Google search updates, which helped push its content higher in search results, attracting a wave of new users to the 19-year-old social media platform. However, these new users, referred to as logged-out users, generate less advertising revenue than logged-in users, who tend to spend more time on the platform, as detailed in Reddit’s financial filings.

Reddit is actively working to convert logged-out users into registered users by simplifying the sign-up process, Huffman told CNBC in August. He also noted that Reddit's direct traffic is “highly resilient” to Google search changes.

The company said global logged-out users grew 70% year-over-year to 53.1 million, while global logged-in users rose 27% to 44.1 million.

Reddit's stock has now reached a new high of $81.74, rising over 2% in pre-market trading. With no clear resistance levels ahead, where do you think it’s headed next? Have you bought Reddit yet? 😊 Anyway my target price is 105