Reddit (NYSE: RDDT) went public earlier this year with a unique promise in social media. Rather than just making money through advertising, the way social media companies have traditionally, Reddit aimed to unlock its massive content portal, which the company calls its corpus, and use it for training AI models.
While there was some skepticism about that business model, especially since Reddit had essentially never been profitable in its nearly 20-year history, the emergence of its advertising business and its potential in AI delivered a blowout quarter.
The stock jumped 42% on Wednesday, and shares have now more than tripled from their $34 initial public offering (IPO) price in March. Revenue jumped 68% in the quarter to $348.4 million, which smashed estimates at $312.8 million.
Reddit’s unique advantage
Reddit is different in a number of ways from other social media platforms like Meta’s Facebook and Instagram.
First, Reddit is entirely anonymous, giving users more freedom to say what they want or explore taboo topics. It is also almost entirely text-based, unlike other social media platforms such as Facebook and Instagram, which are more centered around images and videos.
Reddit’s differentiated platform now seems to be catching on with advertisers in a way it hasn’t before, and Reddit’s thousands of subreddits offer advertisers the opportunity to target specific audiences through subreddits that match their products.
With advertisers looking for new ways to reach new audiences, and ad demand bouncing back after a lull in 2022, Reddit’s IPO and push into advertising seem to be well timed.
Reddit shares soar
Reddit on Tuesday reported net income of nearly $30 million for the third quarter, while its revenue of $348.4 million for the period topped analyst forecasts. Those figures were up from a loss of $7.4 million on sales of $207.5 million a year ago. Showing impressive customer growth, the business now has more than 97 million daily users, up 47% from a year ago.
A key factor behind Reddit’s fast growth of late is artificial intelligence. In a letter to shareholders, Reddit co-founder and CEO Steve Huffman said a new AI-powered service that lets people translate posts between English, French, Spanish, Portuguese, Italian and German quadrupled its number of users. Reddit plans to roll out the feature to more than 30 countries over the course of 2025, he added.
“In 2024 so far, ‘Reddit’ was the sixth most Googled word in the U.S., underscoring that when people are looking for answers, advice or community, they’re turning to Reddit,” Huffman wrote. “We saw this play out in real time when the White House came to Reddit to share critical information during recent hurricanes, reaching people in the affected areas with timely updates.”
Reddit was launched by Huffman, Alexis Ohanian and Aaron Swartz in 2005, only some 16 months after Mark Zuckerberg launched Facebook. But Reddit didn’t go public until earlier this year and had never turned a profit, piling up hundreds of millions in losses even as its audience steadily grew.
Reddit’s stock, which in March debuted on the New York Stock Exchange at $34 a share under the ticker symbol “RDDT,” have since more than tripled in value and traded Wednesday afternoon at $113.50, up 39% on the day.
Today, the company’s main source of revenue remains advertising, although it now also brings in money through financial agreements with companies like Google and OpenAI that train their generative-AI tools on Reddit’s content.
Reddit also was in the black for one quarter in both 2021 and 2023, according to the company.
reddit stock price target raised
Bernstein Raises Reddit Inc (RDDT) Price Target, Citing AI Potential Amid Contrasting Valuation Concerns
Reddit Inc (NYSE:RDDT) is an American social news aggregation, content rating, and forum social network. The company has embraced artificial intelligence by licensing its data to train AI models, securing data licensing agreements totaling over $200 million over the coming years.
On October 30, Bernstein raised the firm’s price target on Reddit (RDDT) to $85 from $65 and kept an “Underperform” rating on the shares. The firm’s bearish outlook comes from Reddit’s expensive valuation. However, the analyst also points out the company has the potential to be an artificial intelligence beneficiary. The analyst describes Reddit as a real Dr. Jekyll and Mr. Hyde story.
“Looking ahead, including the search experience on Reddit is a key part of our strategy,” Huffman said Tuesday in a call with Wall Street analysts. “We want to ensure that all users have the best experience possible. This includes users coming to Reddit from external search and those searching directly on Reddit who are looking for recommendations on what to buy, what to watch, or what products or services are the best.”