Reddit shares soared as much as 14% on Wednesday after the social media firm posted unexpectedly strong revenue growth and improving profitability in the first earnings report since its market debut.

The social media company surprised Wall Street late on Tuesday with a forecast that it could post an adjusted profit in the second quarter, and its revenue outlook was also far above estimates.

The projections followed better-than-expected results for the first three months of 2024 — Reddit’s first earnings report since making its public debut in March at the top of its targeted range of $31 to $34, which gave the company a valuation of about $6.4 billion by the end of the trading day.

Reddit’s revenue for the first quarter rang in at $243 million — blowing past the $212.8 million expected by LSEG and a whopping 48% increase from the $163.7 million it raked in a year earlier.

Reddit impressed investors late Tuesday with its first-ever earnings report, which said that revenues topped anaylsts’ estimates and frecast that it could post an adjusted profit in the second quarter. REUTERS

Some $222.7 million of the sum was from ad revenue alone, according to Reddit. The figure was up 39% year-over-year — a faster rate of growth than the company’s top competitors, CNBC earlier reported.

Meta’s ad revenue, for reference, jumped 27% in the first quarter, followed by a 24% increase at Amazon and just 13% growth at Google-parent Alphabet.

Reddit reported a net loss of $575.1 million. Stock-based compensation expenses and related taxes were $595.5 million, primarily driven by charges due to the initial public offering.

“We suspected that Reddit would come out strong out of the gates, and Reddit exceeded our bullish expectations,” Bernstein analyst Mark Shmulik said in a client note.

“Reddit appears to be reaping the benefits of a strong digital ad market, buoyed by some ‘free’ IPO marketing, alongside increased traffic courtesy of their new favorite AI partner Google.”

Reddit made its public debut in March, when it was valued at upwards of $6 billion. (Pictured: Reddit CEO Steve Huffman with mascot Snoo) AFP via Getty Images

Looking to the second quarter, Reddit said it expects revenue to be somewhere between $240 million to $255 million, topping the $224 million expected by analysts, according to LSEG.

The midpoint of the guidance range suggests growth of about 32% for the second quarter, up from $183 million from a year earlier, CNBC reported.

Several analysts have said that despite being founded in 2005, Reddit was still in early stages of the process to generate ad revenue and should benefit in the coming quarters from expanded ad targeting and measurement tools, among others.

The company’s more than 100,000 discussion forums, or subreddits, filled with user-generated content topics ranging from history to gaming have made it an attractive partner for companies looking to train their data-hungry AI models.

Reddit, whose valuation is still much smaller than rivals such as Meta ($1.19 trillion), was on track to increase its market capitalization by more than $1 billion to upwards of $9 billion based on its premarket share price of $56.97.

At the time of writing, in premarket trading, Reddit’s share price sat at $54.89, marking a more than 11% increase from the previous trading day.

At least seven analysts raised their price target on Reddit’s stock, pushing the median view to $55, according to LSEG data. The company priced its much-awaited initial public offering at $34 in March.

Reddit remains in early days of developing its ads business, Piper Sandler analysts said, adding that a large international user opportunity remains untapped.

With Post wires

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