By Jaspreet Singh
(Reuters) -Reddit on Tuesday reported its first quarterly profit and forecast fourth-quarter revenue above estimates, helped by its AI content licensing deals and strong digital advertising spending, sending its shares up 22% in extended trading.
Reddit's results, its third after going public in March, stoke confidence that more advertisers are turning to the platform, driven by initiatives including translation into other languages by using machine learning to tap new users.
In 2025, the company will be modernizing its search products with improved results page, autocomplete features and integration of large language models to make search results better, CEO Steve Huffman said on a post-earnings call.
The company's content licensing deals with Alphabet (NASDAQ:GOOGL)'s Google and Microsoft-backed OpenAI for training their AI models have also been boosting its revenue, analysts have said.
"Reddit's AI partnerships with Google and OpenAI are a huge bonus right now, and while they contributed a good deal to this quarter’s revenue, they're like training wheels on a bike — good for stability, but they won't fuel long-term growth," said Jeremy Goldman, senior director of briefings at Emarketer.
Reddit expects fourth-quarter revenue to be between $385 million and $400 million, compared with analysts' average estimate of $357.9 million, according to data compiled by LSEG.
The company reported a profit per share of 16 cents for the third quarter, compared with a loss of 13 cents a year earlier. Analysts, on average, had expected a loss of 7 cents per share.
Revenue rose 68% to $348.4 million in the quarter, beating analysts' estimate of $312.8 million.
The company's daily active unique visitors increased 47% to 97.2 million in the third quarter ended Sept. 30, while its global average revenue per user (ARPU) increased 14% to $3.58.
"The significant difference in revenue generated per user between Reddit and comparable platforms such as Pinterest (NYSE:PINS) and Meta (NASDAQ:META) suggests potential for enhanced dynamic advertising returns through improved audience targeting and performance tracking," said Michael Ashley Schulman, chief investment officer at Running Point Capital.