Shares of social media site Reddit (RDDT) soared 20% higher in after-hours trading Thursday after reporting a 61% surge in revenue that topped analyst expectations. While the shares settled down and are now up 6% before the market opens Friday, the social media company indicates the momentum will continue into the second quarter.
Now solidly profitable, RDDT seems to have cracked Google's algorithm tweak and is expecting further digital advertising gains. It still expects volatility, however, as Reddit CEO Steve Huffman told analysts on the earnings conference call, "We do expect some bumps along the way from Google, because we've already seen a few this year."
Reddit generates over 90% of its revenue from digital advertising and has found success from its conversation ad placement format that allows advertisers to place ads in subreddits relevant to the topic.
Revenue has grown at a 49% compound annual growth rate since the first quarter of 2021, increasing five-fold over that time frame to $392.4 million, handily beating Wall Street estimates of $370 million. Earnings were also much stronger than expected as RDDT posted profits of $0.13 per share, trouncing analyst expectations of just $0.02 per share.
Even better for investors, Reddit said it expected Q2 results to be just as good, with revenue jumping 49% year-over-year to a range of $410 million to $430 million. At the midpoint, RDDT's forecast again well surpasses analyst estimates of $392 million, a 7% beat.
Daily active users rose 31% to 108.1 million globally, with 21% growth in the U.S. However, the number of logged-in users only grew 23% compared to a 38% increase in logged-out users. That’s important because Reddit’s business is built on and relies upon user engagement. Without logging in, users can’t comment on or create posts. Some 55% of all of Reddit’s daily active users are just skimming the site, though advertisers don't seem to mind so far.
