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Highlights
- Reddit reports first quarterly profit and forecasts higher-than-expected revenue for Q4.
- AI content licensing deals with Google and OpenAI boost Reddit's earnings.
- Reddit plans major search upgrades in 2025, leveraging machine learning and AI.
In a major milestone since going public, Reddit (NASDAQ:RDDT) announced on Tuesday that it achieved its first quarterly profit, reporting strong results driven by its AI content licensing agreements and robust digital advertising growth. Following this news, the company’s stock soared by 22% in after-hours trading, reflecting investor optimism.
For the third quarter, Reddit reported a profit per share of 16 cents, a significant turnaround from a loss of 13 cents per share in the same period last year. Analysts had projected a loss of 7 cents per share, making the profit report a welcome surprise. The company’s revenue also exceeded expectations, rising by 68% to $348.4 million, compared to analysts’ predictions of $312.8 million. Reddit’s revenue success was largely attributed to its strategic AI content licensing deals and a strong push in digital ad spending.
Reddit’s third quarterly report since its IPO in March suggests a growing confidence among advertisers, who are increasingly turning to the platform. The company’s success stems in part from its use of machine learning to improve user experience, including expanding its platform to non-English-speaking users through automated translations.
According to CEO Steve Huffman, Reddit has big plans for 2025, including modernizing its search functions with enhanced features like autocomplete and better integration of large language models (LLMs). These upgrades, Huffman said during the post-earnings call, are aimed at providing more accurate and relevant search results, a key factor in keeping users engaged and driving advertising revenue.
AI-driven initiatives have become a central part of Reddit's business model. The company's lucrative content licensing agreements with tech giants such as Alphabet’s Google and Microsoft-backed OpenAI have been pivotal in boosting revenue. These deals allow Google and OpenAI to use Reddit’s vast content troves for training their AI models, providing the company with a new stream of income. Analysts have praised this move, noting that the partnerships position Reddit to capitalize on the fast-growing AI sector while enhancing its appeal to advertisers.
Looking ahead, Reddit is forecasting fourth-quarter revenue to range between $385 million and $400 million, well above analysts' estimates of $357.9 million, according to data from LSEG. The company’s strong performance in the third quarter has set a solid foundation for continued growth.
In terms of user engagement, Reddit also saw a significant increase in activity. The platform’s daily active unique visitors rose by 47%, reaching 97.2 million as of the quarter ending on September 30. Additionally, its global average revenue per user (ARPU) increased by 14%, reaching $3.58.
