Reddit Inc. RDDT has projected third-quarter revenue that surpasses Wall Street’s expectations, indicating a rebounding digital ad market. However, the stock experienced a decline in extended trading.
What Happened: Reddit’s forecast for the third quarter, its second since going public in March, suggests a resurgence in the digital ad market, attracting more advertisers to the platform, reported Reuters.
Analysts have attributed the stock’s decline to the upcoming end of the pre-IPO lockup for private or pre-IPO investors on Friday. Additionally, the stock’s low average revenue per user (ARPU) growth and the conservative quarterly forecast have also been cited as reasons for the downturn.
Despite these factors, Reddit’s earnings have sparked optimism about the company’s content licensing deals with Alphabet Inc. GOOGL GOOG and Microsoft Corp. MSFT backed OpenAI.
Reddit’s CEO, Steve Huffman, announced plans to test new AI-powered search results later this year. The company expects its third-quarter revenue to be between $290 million and $310 million, compared to analysts’ average estimate of $278.7 million, according to LSEG data.
“(This) is probably a ‘sell the news’ reaction to get out of the stock ahead of this Friday, when the pre-IPO lockup ends for private or pre-IPO investors,” Michael Ashley Schulman, Chief Investment Officer, Running Point Capital said.
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Why It Matters: Reddit’s forecast comes on the heels of a strong second-quarter performance, where the company reported a revenue of $281.2 million, a 54% increase from the previous year.
The company’s daily active unique visitors also rose by 51% to 91.2 million in the second quarter, while its global ARPU increased by about 2% to $3.08. Despite these positive results, the company’s shares experienced a decline in extended trading.
Reddit’s strong performance in the second quarter showed a significant increase in daily active unique users by 51% year-over-year. This growth in user engagement is crucial for attracting advertisers, which is a key revenue stream for the platform.
In May, JPMorgan highlighted Reddit’s enhanced advertising tools as drivers for “sizable upside.” The company’s first-quarter results had already surpassed expectations, setting a positive tone for subsequent quarters.
Furthermore, the debate about Reddit’s value underscores the platform’s potential and the high expectations from its user base and investors.
Price Action: Reddit Inc. closed at $54.36 on Tuesday, down 4.31%. In after-hours trading, the stock continued to decline, falling by an additional 4.53%. However, year to date, Reddit Inc. has seen an overall increase of 7.77%, according to data from Benzinga Pro.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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