Reddit reported first-quarter revenue on Thursday that beat Wall Street expectations, and issued better-than-expected guidance.
The stock initially soared by as much as 19% in after-hours trading, but receded to around 5% when executives discussed the shaky economy and Google search-related challenges.
Here’s how the company did compared with LSEG estimates:
- Earnings per share: 13 cents vs. 2 cents expected
- Revenue: $392 million vs. $370 million expected
Revenue rose 61% from $243 million a year earlier. Net income was $26.2 million, or 13 cents a share, compared to a year ago when the company recorded a net loss of $575.1 million, or $8.19 a share, due to costs associated with its IPO.
Reddit said second-quarter sales should be in the range of $410 million to $430 million, ahead of Wall Street expectations of $396 million. About the ongoing trade dispute between the U.S. and China, Reddit said in a letter to investors that it is “well-positioned to meet this moment.”
“Ever-shifting macro environments like these create both challenges and opportunities,” Reddit CEO Steve Huffman wrote. “We’ve grown through challenging times before — people need connection and information just as much in uncertain times.”
Reddit operating chief Jen Wong acknowledged the sluggish economy on the company’s earnings call, saying that while “there’s a lot of uncertainty in the market,” it has been “mostly business as usual.”
“We’re staying close to our customers to help them through the volatility by sharing insights on consumer trends that inform their strategy based on things that we’re seeing on Reddit,” Wong said.
The company’s global daily active uniques, or DAUq, jumped 31% year over year to 108.1 million in the first quarter. Analysts were expecting 107.3 million.
Reddit has been a big beneficiary from Google search changes and internal site improvements, which has led to an influx of new and returning users, or logged-out users. The company has focused on site updates and features intended to convince logged-out users to create accounts and become logged-in users, which are more valuable to advertisers.
The company’s first-quarter global logged-in DAUq rose 23% year over year to 48.7 million, while its global logged-out DAUq jumped 38% to 59.4 million.
In February, Reddit said that a Google search algorithm change temporarily impacted the company’s user growth during the fourth quarter. Search-driven traffic soon recovered in the first quarter, the company said at the time.
Huffman said on the earnings call that Reddit’s search-derived traffic “could be more bumpy than usual” in the near term, because “the search ecosystem is under heavy construction.”
He said that search-related “short-term bumps don’t affect our long-term strategy or opportunity,” and that the company is “in control of our own destiny.”
Huffman later added that the online search market is being impacted by large language models, or LLMs, that companies like OpenAI and Perplexity are using to gather and then summarize web data based on written prompts. Reddit’s own AI-powered ChatGPT-like service, dubbed Reddit Answers, now has 1 million weekly active uniques, or WAUq, the company said.
Although people may want to use LLM-powered tools to see “annotated sterile answers from AI,” Huffman said that Reddit’s unique user-created content involving “subjective, authentic, messy, multiple viewpoints” will help the company stand out.
Across the online ad sphere, companies are highlighting the potential impact of economic shifts.
Meta shares rose Thursday after the company reported first-quarter earnings that beat on the top and bottom. However, the company’s advertising sales in the Asia-Pacific region missed estimates.
Susan Li, Meta’s finance chief, said that “Asia-based e-commerce exporters” have reduced their digital ad spending likely due to the de minimis trade loophole ending Friday.
Snap said in its earnings report this week that the company “experienced headwinds to start the current quarter,” and declined to provide guidance because of macroeconomic uncertainties.
Alphabet reported first-quarter earnings last week, and said that Google Advertising sales jumped 8.5% year over year to $66.89 billion while YouTube ad sales rose 10% to $8.93 billion.
Pinterest reports earnings on May 8.
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