Reddit stock jumps 12%: can AI-driven ads spark stock revival?

Shares of Reddit surged in premarket trading on Friday after the company reported stronger-than-expected first-quarter results and issued an upbeat revenue forecast, highlighting growing returns from its artificial intelligence-driven advertising strategy.

The stock rose about 12% ahead of the open, extending gains after climbing 6.3% in after-hours trading following the earnings release.

Despite the rally, Reddit shares remain down roughly 39% year-to-date, reflecting a volatile period for the stock after its sharp post-IPO run.

AI-driven ad platform fuels revenue growth

Reddit’s performance was underpinned by robust growth in its advertising business, which has increasingly incorporated artificial intelligence tools to enhance targeting and campaign efficiency.

The company reported adjusted earnings of $1.01 per share on revenue of $663 million, comfortably beating analyst expectations of 57 cents per share on $608 million in revenue, according to FactSet.

Advertising revenue rose 74% year-on-year to $625 million, driven by improved ad placements and better campaign management through AI-powered features.

These include tools such as an AI copywriter tailored for Reddit ads and automated image optimization for different placements.

The platform enables advertisers to place promotions directly within relevant discussion threads across its community-based forums, known as subreddits, offering a more contextual and targeted approach compared to traditional social media feeds.

Reddit expects second-quarter revenue to come in between $715 million and $725 million, ahead of Wall Street estimates of $711 million.

User growth and engagement show mixed trends

User metrics also showed continued expansion, though growth has moderated compared to previous periods.

Daily active unique visitors increased 17% year-on-year to 126.8 million in the first quarter, slightly above analyst expectations of 125.9 million.

However, the pace of growth slowed from 30.7% in the prior year, a trend that has drawn scrutiny from some investors.

"On the user side, we're making steady progress, but we still have work to do to increase frequency and accelerate growth toward the levels we see on leading platforms," said CEO Steve Huffman in the company’s shareholder letter.

At the same time, global average revenue per user rose 44%, indicating improved monetization even as user growth decelerates.

Reddit has emphasized its unique position in the evolving AI landscape, pointing to the value of its vast repository of human-generated content.

"As AI becomes more prevalent, people increasingly seek out real human perspectives, and in turn, AI models rely on these perspectives to train and power their products," Huffman said.

Competition, hiring strategy, and valuation in focus

Reddit’s results come as it competes with larger digital advertising platforms such as Meta Platforms, which operates Instagram and Facebook, as well as peers like Snap Inc. and Pinterest.

While many of these companies have cut jobs to manage costs and redirect spending toward AI initiatives, Reddit is taking a different approach.

The company is "still hiring and adding to our talent base," Chief Operating Officer Jen Wong told Reuters, positioning the firm as an outlier in the sector.

Analysts at Morgan Stanley highlighted the importance of continued execution, particularly in user growth and engagement.

"Execution across these areas (US user growth) remains key to driving multiple expansion for Reddit…as it will showcase its growing importance, even in a future GenAI enabled and agentic landscape," the analysts said.

Reddit currently trades at a 12-month forward price-to-earnings ratio of 30.40, higher than Snap and Pinterest but below Meta, reflecting investor expectations for sustained growth driven by its AI-enabled advertising and unique data ecosystem.

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