Reddit's strong revenue forecast signals advertising strength

Reddit forecast second-quarter revenue above Wall Street estimates on Thursday, betting on growing digital advertising spend on the social media platform despite uncertainty over marketing budgets.

The company's shares, which rose as much as 20% in extended trading, pared gains to trade up 7%, after CEO Steve Huffman said on a post-earning call that the company expects some disruption for daily active users from Google search.

"We do expect some bumps along the way from Google, because we've already seen a few this year," Huffman said, adding that the search ecosystem was undergoing significant changes, which could prompt frequent near-term disruptions.

Reddit had experienced volatility in traffic from Google's search algorithm change in the fourth quarter due to the search giant's focus on AI-generated summaries on its results page.

But, results suggest that Reddit's ad tech investments are paying off and the company is attracting advertisers at a time when the ending of a duty-free import loophole, combined with deepening trade tensions, has constrained ad budgets for some social media platforms.

Facebook-parent Meta topped revenue expectations on strong ad sales. In contrast, smaller rival Snap said that it would not issue a quarterly forecast due to economic uncertainty, as advertisers favor bigger platforms in tough times.

Reddit is benefiting from its conversation placement ads format, where brands can advertise directly within discussion threads taking place in its interest-based communities known as subreddits.

It expect current-quarter revenue between $410 million and $430 million, above analysts' average estimate of $395.5 million, according to data compiled by LSEG.

Reddit jostles with rival platforms – including TikTok, Facebook and Instagram – for digital ads, as these platforms have become a reliable go-to for marketers because of their massive user base. The Reddit stock, which debuted in March 2024, fell 27% so far this year.

The company expects adjusted earnings before interest, taxes, depreciation, and amortization of $110 million to $130 million in the second quarter, ahead of estimates of $105.3 million.

Revenue for the quarter ended March 31 grew 61% to $392.4 million, surpassing estimates of $370 million. Its profit per share of 13 cents handily beat estimates.

Reddit has been using AI to improve its products and user engagement.

Daily active unique visitors rose 31% to 108.1 million during the reported quarter, compared with estimates of 107.5 million.

Global average revenue per user increased 23% to $3.63.