Reddit Rockets After Crushing Q2 Estimates, Fueled by AI and Ad Growth

date
01/08/2025
avatar
GMT Eight
Reddit's second-quarter results have investors excited, with the company beating revenue and earnings expectations. The social media platform's revenue grew by more than 75% year-over-year, its fastest growth in three years, driven by its advertising business and a significant jump in its data licensing segment fueled by AI partnerships. This strong performance, along with a bullish Q3 outlook, has caused the stock to rally.

Reddit's stock experienced a significant surge in after-hours trading after releasing a robust second-quarter earnings report that surpassed Wall Street's expectations. The social media platform demonstrated its fastest revenue expansion in three years, driven by its advertising business and a growing focus on AI-related ventures, including lucrative data licensing agreements.

For the quarter ending in June, Reddit reported revenue of approximately $500 million, an increase of more than 75% from the previous year. This figure exceeded the consensus analyst estimate of around $425 million. The company's adjusted earnings per share reached $0.92, well above the anticipated $0.72.

Advertising remained the dominant force, generating $465 million. The company has been actively investing in AI-powered marketing tools to enhance its ad business. Furthermore, its data licensing segment, which includes deals with major AI players like Google and OpenAI, saw a year-over-year jump of more than 20% to $35 million. The company's CEO, Steve Huffman, highlighted the importance of these AI initiatives and the success of its Reddit Answers tool, which has attracted 6 million weekly users.

The company's optimistic guidance for the third quarter further bolstered investor confidence. Reddit projects Q3 revenue to be between $535 million and $545 million, outperforming the analyst consensus. Additionally, it anticipates adjusted EBITDA will signal continued profitability improvements. This strong performance led to a significant market reaction, with Reddit's stock soaring more than 17% in after-hours trading, reflecting renewed investor confidence in the company's growth strategy.