Reddit's stock (RDDT) experienced a significant jump on Friday, closing the session nearly 8% higher after the company released third-quarter financial results that far exceeded market expectations. The surge was propelled by impressive revenue figures and a notable increase in its global user base, pushing the stock's year-to-date gains to approximately 28%.
The social media platform's performance provided a strong signal to investors, suggesting robust health in its advertising business and continued expansion in key international markets. The positive results helped to alleviate some concerns about competition and the broader digital advertising landscape.
Key Takeaways
- Reddit's stock (RDDT) closed Friday's trading session up nearly 8%.
- Third-quarter revenue grew 68% year-over-year to $585 million, beating analyst forecasts.
- Earnings per share came in at $0.80, well above consensus estimates.
- Daily active unique users (DAUqs) increased by 19% to 116 million globally.
A Closer Look at the Financials
Reddit's financial disclosure for the third quarter painted a picture of strong operational performance. The company reported earnings per share of $0.80, a figure that comfortably surpassed the consensus estimates from analysts surveyed by Visible Alpha.
Revenue growth was a key highlight. The company generated $585 million in the quarter, marking a 68% increase compared to the same period last year. This substantial growth in revenue also exceeded market expectations and points to the effectiveness of Reddit's monetization strategies.
By the Numbers
- Revenue: $585 million (+68% YoY)
- Earnings Per Share: $0.80
- Stock Gain (Friday): ~8%
- Year-to-Date Gain: ~28%
User Growth Defies Market Concerns
A significant factor behind the strong financial results was the sustained growth in Reddit's user base. The platform's daily active uniques, or DAUqs, reached 116 million, a 19% increase from the previous year. This metric is closely watched by investors as an indicator of engagement and future revenue potential.
International Expansion Fuels Growth
The growth was particularly pronounced in international markets. Reddit reported a 31% jump in international DAUqs, reaching 64.4 million. The company highlighted strong performance in countries like France, Brazil, and India, indicating that its efforts to expand its global footprint are yielding positive results.
In the United States, user growth was more modest but still positive, with U.S. DAUqs rising by 7% to 51.6 million. The combined growth demonstrates the platform's expanding appeal across different regions and cultures.
Addressing AI Search Competition
Heading into the earnings report, there was some apprehension among investors regarding the potential impact of new AI-powered search features from companies like Google. The concern was that these tools could divert traffic away from platforms like Reddit, which are often used for finding authentic user-generated information. However, the strong user growth numbers reported by Reddit have helped to ease these fears for the time being.
Management Focuses on Search and Product
During the earnings call with analysts, co-founder and CEO Steve Huffman expressed confidence in the company's direction. He emphasized that Reddit is making significant progress on its primary focus areas, which include improving the core product, enhancing its search capabilities, and continuing its international expansion.
"We are making real progress across the three main focus areas we shared last quarter, core product, search and internationalization," Huffman stated, underscoring the company's strategic priorities.
Huffman identified search as one of Reddit's most significant opportunities. He noted that during the third quarter, more than 75 million people used Reddit specifically for search purposes. He also pointed out that this number is actively growing, positioning Reddit as a key destination for users seeking answers and community-driven insights.
This focus suggests that rather than viewing external AI search as a threat, Reddit is working to solidify its own platform as an indispensable search tool. By leveraging its vast repository of user conversations and niche communities, the company aims to become a primary resource for a wide range of queries, a strategy that appears to be resonating with its user base and, consequently, with investors.
