Reddit shares surge 20% on record profit and strong revenue outlook
Reddit Inc. shares surged on Friday after the company posted its most profitable quarter to date and offered a third-quarter revenue forecast that significantly beat Wall Street expectations.
The strong performance, driven by growth in Reddit’s advertising business, marks a key milestone for the company following its public debut in March 2024.
For the second quarter, Reddit reported net income of $89 million, more than double the $36 million analysts had expected.
Revenue came in at $500 million, well above the average analyst estimate of $425 million.
The company expects revenue for the current quarter to range between $535 million and $545 million.
At the midpoint, this would exceed Wall Street’s $473 million forecast by more than 13%.
The upbeat results sent Reddit shares soaring as much as 20% after markets opened on Friday— their biggest intraday gain in nearly four months. Prior to Thursday’s announcement, Reddit shares were down 3.2% for the year.
Ad business expands as Reddit diversifies
Reddit’s financial results reflect the payoff of its ongoing investments in advertising infrastructure.
Chief Operating Officer Jennifer Wong highlighted the company’s focus on improving its ad stack, strengthening its sales team, and diversifying its advertiser base.
“We’re seeing more active advertisers on our platform,” Wong said. “The investments we’ve made in our sales team and in our ad stack and roadmap — well, our work is working.”
Historically, Reddit’s ad revenue has been driven by a relatively small group of large marketers.
The company is now actively targeting small and medium-sized advertisers, as well as expanding internationally to mitigate concentration risks.
Reddit’s ability to monetize its engaged user base is beginning to show results, with some analysts noting a shift in perception.
The company now boasts 110 million daily active users, a 2% increase from the previous quarter.
Meanwhile, its AI-powered tool, Reddit Answers, has reached 6 million weekly active users since its launch in December.
While monetization of this product remains in early stages, Wong said the company sees long-term opportunity.
AI, data licensing and market outlook
Beyond advertising, Reddit is pursuing revenue opportunities through data licensing.
The company has signed agreements with OpenAI and Google, and is seeking additional partnerships.
Reddit’s vast archive of user-generated content — spanning nearly two decades — has become a valuable resource for training AI models.
At the same time, Reddit is using its own data internally to power new features like Reddit Answers.
However, Reddit is also facing legal challenges in this area. The company is engaged in litigation against Anthropic PBC, alleging unauthorized use of Reddit data to train AI systems.
Analysts remain cautiously optimistic about Reddit’s prospects.
BofA Securities raised its price target on Reddit to $180 from $150, citing strong execution and a robust advertising outlook.
Still, the firm maintained a Neutral rating, pointing to Reddit’s high valuation relative to peers, limited scale of logged-in US users (23 million), and possible traffic disruptions related to changes in Google’s AI strategy.
With 64% year-over-year revenue growth and a fast-expanding ad base, Reddit appears well-positioned, though the company must navigate competition and valuation concerns as it scales.
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