Reddit (RDDT) shares surged 16% in premarket trading on Friday after the social media platform issued a second-quarter revenue forecast that exceeded Wall Street expectations, signaling renewed momentum in its advertising business following a challenging start to the year.
The company projects second-quarter revenue in the range of $715 million to $725 million, surpassing the $711.6 million consensus estimate from LSEG. Adjusted EBITDA for the period is expected to land between $285 million and $295 million, also above the $277.1 million forecast.
This upbeat guidance marks a pivotal shift for Reddit, whose shares had declined approximately 36% year-to-date amid concerns over slowing growth. The new outlook refocuses attention on the company's ability to monetize its vast community of users and leverage artificial intelligence to capture a larger share of the digital advertising market.
Strong First-Quarter Results
Reddit reported first-quarter revenue of $663 million, a 69% increase year-over-year. Advertising revenue jumped 74% to $625 million, while net income reached $204 million, or $1.01 per diluted share. Daily active unique visitors climbed 17% to 126.8 million, and average revenue per user rose 44% globally to $5.23.
Chief Operating Officer Jen Wong told Reuters that active advertiser numbers surged 75% year-over-year, marking the third consecutive quarter of substantial gains. Performance ads—which drive direct actions such as purchases, sign-ups, or app installs—accounted for over 60% of the platform's ad revenue, she noted on the earnings call.
AI-Powered Advertising Tools
Reddit has increasingly turned to artificial intelligence to enhance its advertising offerings. The company has developed AI software that assists advertisers with copywriting and image cropping tailored for Reddit's unique ad slots. Additionally, its AI-powered ad system inserts ads directly into subreddit threads, the topic-driven communities that form the core of the platform.
CEO Steve Huffman described Reddit as “powered by deeply engaged communities and authentic human conversation,” and highlighted the company’s “unique advantage in the age of AI.” Reddit’s vast repository of over 25 billion posts and comments has become valuable for training large language models, which rely on extensive datasets of real human conversation.
Market Context and Competitive Landscape
While Reddit remains significantly smaller than Meta Platforms (META), its latest results suggest a growing foothold in the digital advertising sector. Meta, Snap (SNAP), and Pinterest (PINS) have all reduced headcount over the past year, reallocating resources toward AI initiatives. In contrast, Wong stated that Reddit is “still hiring and adding to our talent base.”
Despite the positive quarter, some risks remain. Wong noted that some advertising partners are taking month-to-month commitments due to market volatility, even though she has not observed a significant pullback in overall spending. Reddit’s forward price-to-earnings ratio remains notably higher than those of Snap, Pinterest, or Meta, meaning the stock cannot afford a weak quarter or stagnating user numbers.
For now, the company has delivered: ad revenue accelerated, profits expanded, and guidance remained firm. The key question is whether Reddit can sustain user growth both domestically and internationally, and whether its AI-driven ad technology can drive long-term gains rather than just a temporary post-earnings boost.
