Reddit stock soared 42% on Wednesday after the company reported its first unexpected quarterly profit since going public last March.
The stock closed at $116.05 on more than eight times its normal volume as investors realized the company was emerging as an unexpected winner in the artificial intelligence arms race.
Earnings for the third quarter ended Sept. 30 were 16 cents per share on revenue of $348.4 million. Wall Street analysts had expected a loss of 7 cents per share on revenue of $314 million, according to FactSet.
Almost every indicator for the quarter was up.
The number of daily active users on Reddit’s app and website increased 47% year-over-year to 97.2 million. Advertising also surged to $315 million, an increase of 56% from the previous year.
But the most impressive growth was in the company’s “other revenue” category. This line from the income statement represents the agreements Reddit has with Google, OpenAI, and others to license user content to companies that train AI models. Other revenue increased 547% year over year to $33.2 million.
The numbers prompted a flurry of analyst reports that sought to place the quarterly report in a broader context, highlighting B2B opportunities. “Post-IPO, Reddit looks like a company that suddenly became an AI winner,” Bernstein analyst Mark Shmulik wrote. “We are growing ad revenue at an unprecedented rate, introducing user growth cheat codes to Translate and Google, and achieving long-standing profitability goals” within months.
Reddit’s distinctive message boards and engaged community across a variety of fields have attracted the attention of the entertainment industry in recent years. AMC Entertainment, the premier movie theater circuit, has been in the midst of the coronavirus pandemic, thanks in part to WallStreetBets, an influential group on the platform that championed stocks in companies like AMC and (more famously) GameStop. I was able to get by on my wages. Film and TV marketers are also incorporating Reddit into their media plans more regularly these days due to cost structures. Morgan Stanley analyst Brian Nowak wrote in a research note that the company’s “low-priced inventory (and its innovations) are enabling it to gain market share.”
