Reddit shares jumped as much as 20% after the company reported second-quarter earnings on Thursday that beat on sales and guidance.
Here’s how the company did compared with LSEG estimates:
Earnings per share: 45 cents vs. 19 cents expectedRevenue: $500 million vs. $426 million expected
Reddit’s revenue grew 78% year-over-year in the second quarter and was 17% above consensus estimates, the biggest beat in its short history as a public company. Net income came in at $89 million in the second quarter, compared with a net loss of $10 million in the second quarter of last year due to costs associated with its IPO.
The company said third-quarter revenue will be in the range of $535 million to $545 million, ahead of Wall Street estimates of $473 million.
Adjusted earnings in the third quarter are projected to be in between $185 million to $195 million, ahead of StreetAccount’s estimates of $160 million.
Reddit said global daily active users for the quarter grew 21% year-over-year to 110.4 million, ahead of analyst estimates of 109 million.
The company said second-quarter global average revenue per user was $4.53, topping analyst estimates of $3.90.
Reddit’s second-quarter sales in the U.S. were $409 million, ahead of StreetAccount estimates of $335 million. International revenue was $91 million in the quarter, compared with $89 million that StreetAccount projected.
“Other revenue,” which includes Reddit’s data licensing business, jumped 24% year-over-year to $35 million.
The company’s second-quarter global logged-in DAUq rose 17% year over year to 49.3 million, while its global logged-out DAUq jumped 24% to 61.1 million.
Reddit CEO Steve Huffman said in a letter to shareholders that the company’s AI-powered Reddit Answers tool, which debuted in December, now has 6 million weekly users, up from 1 million last quarter. Reddit Answers will expand globally and the company will be “integrating it more deeply into the core search experience, and making search a central feature across Reddit,” Huffman wrote in the letter. Huffman didn’t say exactly when Reddit Answers will expand.
“Recently, we celebrated Reddit’s 20th year, and I’ve never been more excited about our business and potential than I am today,” Huffman wrote. “The internet is evolving, and our role as a community-powered platform for human connection is only becoming more critical.”
Huffman said that in order to focus on the “most pressing needs,” Reddit is “deprioritizing a few initiatives,” including its “work on the user economy.” Reddit’s initial 2024 IPO prospectus detailed the company’s efforts to build a user economy business, which could include games and online marketplaces akin to Roblox and Facebook Marketplace.
Investors have been closely monitoring the effects of Google’s recent search engine changes and rise of AI-powered chat apps on Reddit’s ability to obtain new users.
Huffman spoke about some of AI’s impact on Reddit’s search-derived traffic on Thursday’s earnings call, saying that while Reddit “got off to a slower start in April,” the company is now witnessing “better traction as the quarter played out.”
“Traffic from Google varies from week to week, but overall it was a headwind in Q2,” Huffman said. “But looking into Q3, our Q2 exit number was higher than the Q2 average of 110 million.”
Huffman acknowledged that Google’s continual testing of newer generative AI powered features, such as AI Overview, “affects everybody in the ecosystem.” However, Huffman pointed to Reddit’s growing name recognition among consumers as helping the company withstand any major changes, saying that “Reddit is one of the most searched for terms on Google, because users around the internet go to Google with the intention of ending up on Reddit.”
The company is aiming for more consumers to use the Reddit Answers feature to access comments and written conversations on the platform instead of only using search engines and AI-powered chat apps, Huffman explained.
“What users want is the Reddit perspective,” Huffman said. “And so as long as this is true, I think that’s a great thing, and so regardless of how they get to Reddit, our job is to help internet consumers find the kind of answers to their questions and turn that into helping those users become regular core Reddit users as both the seekers and the scrollers.”
Google posted quarterly earnings last week that beat on the top and the bottom line, and Meta followed on Wednesday with better-than-expected results.
Next week, Snap will report quarterly earnings on Tuesday followed by Pinterest on Thursday.
WATCH: Alphabet looks really well positioned.
