June 19, 2024

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Reddit Posts $575 Million Loss Tied to I.P.O. but Also Strong Growth

3 min read

Reddit on Tuesday posted a more than $500 million quarterly loss in its first earnings report as a public company, largely due to stock-based compensation expenses incurred during its initial public offering in March.

But the social media company also saw robust revenue and user growth, underscoring the potential of its digital advertising business as people flock to the site. Last month, Google, Meta and Snap also reported rising advertising sales and double-digit revenue growth.

Reddit’s revenue was $243 million in the first quarter, up 48 percent from $163.7 million a year earlier and above Wall Street estimates of $214 million, according to data compiled by FactSet. The net loss was $575.1 million, compared with a loss of $60.9 million a year earlier. Stock-based compensation expenses totaled $595.5 million, versus $13.2 million a year earlier. Daily active users jumped to 82.7 million, up 37 percent from a year earlier.

The result sent Reddit’s shares soaring 17 percent to $58 in after-hours trading.

Steve Huffman, Reddit’s co-founder and chief executive, attributed the growth to the company’s improvements in product updates and content recommendations to users.

“We’ve been saying for a long time that everyone has a home on Reddit, but we’ve gotten much better about helping them find it,” he said in an interview. “We’ve hit an inflection point where our work is working.”

Reddit, which went public after more than 18 years as a private company, has turned into a kind of litmus test for technology initial public offerings. The company successfully debuted in what had been a tepid I.P.O. market, with its shares soaring 48 percent on the first day of trading and giving investors cause for optimism. Reddit’s shares continue to trade above the company’s I.P.O. price of $34.

Essentially a message board where users congregate on forums to research and discuss interests they have in common, Reddit has spent years trying to diversify its main business of digital advertising. It has struck deals with Google and Cision, public relations services company, and is in talks with other companies that wish to license its vast amounts of conversation data, such as for building artificial intelligence technology. It has also tried to spur an e-commerce business.

In a letter to shareholders on Tuesday, Mr. Huffman said he expected to continue investing in A.I. technology to improve Reddit’s content recommendations so people spend more time on the site. He also plans to invest in search technology, which could help people find information from the conversations that have occurred across the site.

Reddit projected $240 million to $255 million in revenue in the current quarter, above Wall Street’s expectations.

Users, known as Redditors, had been skittish about the company’s going public, worrying that executives would put a priority on profits, and had vented their frustrations on message boards and across social media. But some of that angst seems to have died down in recent weeks, said Mr. Huffman, who described the past month as “relatively quiet.”

“We’re in a good place with a good foundation to build on,” he said.


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