Reddit stock jumps 7% after showing strong advertising and user growth

Reddit's stock surged 7% after the company reported strong third-quarter results, with revenues soaring 68% year-over-year to $585 million and EPS of $0.80, both significantly surpassing analyst expectations. The social media platform also provided an upbeat Q4 sales forecast of $655-$665 million, exceeding Wall Street projections, primarily driven by robust advertising growth, including a 75% increase in active advertisers. While daily active users rose 19% to 116 million, the company acknowledged potential impacts from AI chat apps on new user growth, though its CEO expressed optimism for future partnerships.

Analysis

Reddit (RDDT) significantly exceeded third-quarter estimates, with revenues surging 68% year-over-year to $585 million against an LSEG estimate of $546 million, and EPS reaching $0.80, well above the $0.51 estimate. The company also provided an optimistic fourth-quarter sales outlook of $655-$665 million, surpassing Wall Street's $638 million forecast, driven primarily by robust advertising growth.

This strong performance reflects continued progress in advertising and platform initiatives, as noted by Morgan Stanley analyst Brian Nowak, citing a 75% year-over-year increase in active advertisers and over 50% growth in nine of its top 15 advertiser verticals. Daily active users (DAU) grew 19% year-over-year to 116 million, exceeding estimates, while global logged-in users increased 14% to 50.2 million.

Despite these gains, daily active unique user growth decelerated to 7% year-over-year, compared to 12% in Q2. The company acknowledges potential impacts on new user growth from AI chat applications like ChatGPT and Google's AI Overview, though CEO Steve Huffman expressed optimism for future partnership opportunities in this evolving landscape. Other revenues, including data licensing, also contributed with a 7% increase to $36 million.

Key Decisions for Investors

• Investors should monitor Reddit's ability to sustain its robust advertising growth and leverage platform initiatives, particularly given the strong Q4 guidance.
• Assess the long-term impact of AI chat applications on new user acquisition and engagement, and observe how Reddit's data licensing partnerships evolve.
• Evaluate the trend in daily active unique users for signs of re-acceleration or further deceleration, as this metric could signal underlying platform health.