Reddit surges as AI-driven ad strategy wins praise from Wall Street
(Reuters) -Reddit's shares jumped 15% before the bell on Friday after it reported quarterly results that exceeded Street expectations, boosting investor confidence in the platform's AI-based advertising tools and strong user engagement.
The company's rosy outlook comes on the heels of similarly upbeat results from ad industry leaders such as Meta and Alphabet, underscoring a broader sector shift as advertisers gravitate towards platforms that provide artificial-intelligence tools to create more personalized campaigns.
The company expects third-quarter revenue of between $535 million and $545 million, well above analysts' average estimate of $473 million, according to data compiled by LSEG.
Reddit's focus on understanding user intent through authentic community conversations positions it to unlock new monetization opportunities, said Danni Hewson, head of financial analysis at AJ Bell.
"Being able to home in on exactly the kind of consumer who might be open to splurge on what a seller is offering has made sites like Reddit hugely popular with advertisers," Hewson said.
Reddit's results, along with those of Google and Meta, signal the ad industry's resilience in the face of growing economic uncertainty brought on by shifting U.S. trade policy.
The company's diverse ad offerings, including ads inserting brands directly within conversations on its subreddit discussions, remain attractive to marketers.
Reddit's daily active unique visitors increased 21%, with analysts saying stabilizing daily active user trends are bolstering investor confidence in the platform's "long-term growth narrative".
Despite variable Google-driven traffic posing a headwind in the second quarter, Reddit's U.S. daily active users held steady, expressing confidence that the company's unique content was valuable to both Google and searchers, analysts at Piper Sandler said.
The company has been investing in new products, search capabilities and international expansion to offset inconsistent user traffic.
Reddit is currently valued at a premium compared to its peers, trading at 74.57 times its projected earnings over the next 12 months, well above Pinterest's 19.39 and Snap's 27.54.
If premarket gains hold, Reddit is set to add about $4 billion to its market cap.
(Reporting by Kritika Lamba and Rashika Singh in Bengaluru; Editing by Pooja Desai)
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