Reddit's bet on AI is starting to pay off

• Reddit shares rose 25% after the company reported a rise in revenue and turned a profit for the first time.
• The company reported a 68% increase in revenue and a 47% increase in daily active visitors in the third quarter.
• Reddit's AI-driven translation and revamped AMA product contributed to user growth.

Reddit is reaping the rewards of artificial intelligence.

Shares of the social network rose 25% in after-hours trading after the company reported its first profit and revenue that beat expectations.

Reddit's third-quarter revenue rose 68% year-over-year to $348.4 million, easily beating analysts' expectations of $312.8 million.

The company reported third-quarter profit of 16 cents per share, reversing a loss of 13 cents a year earlier. Analysts had expected an average loss of 7 cents per share, according to LSEG.

Daily active unique visitors increased 47% to 97.2 million in the third quarter ended September 30. Global average revenue per user increased 14% to $3.58.

In the company's earnings call on Tuesday, Reddit CEO Steve Huffman said Reddit's influence continued to grow and people were looking to the platform “for answers, advice or community.”

Huffman said the company used AI to simplify its language translations — first testing it with French, then with Spanish, Portuguese, Italian and German.

“This quarter, machine translation acquired four times more users than last quarter, and based on the success so far, we plan to expand machine translation to over 30 countries by 2025,” Huffman added.

He said Reddit also revamped its popular Ask Me Anything product, which increased traffic.

“We updated the Ask Me Anything, or AMA, product, which resulted in a fivefold increase in the number of AMAs created in the new format,” Huffman said.

Reddit's star continues to rise

Reddit, which went public in March, has had some blockbuster quarters in the markets.

In its first quarter as a public company, the company reported revenue of $243 million, up 48% from the same period last year.

And in the second quarter, the company reported revenue of $281 million, up 54% year-over-year.

This positive net increase was in line with the second quarter results, in which the platform recorded a 51% increase in daily active users worldwide.

Reddit's growth has surpassed other social media platforms. According to FT, Elon Musk's X reported 1.6% growth in daily active users in the second quarter of 2024.

According to its second-quarter earnings report, daily active users across all meta platforms combined, including Facebook, Instagram and Threads, increased 7%.

Reddit expects fourth-quarter revenue between $385 million and $400 million. Analysts expect average revenue of $357.9 million, according to LSEG.

Reddit's advertising revenue growth highlights an “emerging monetization opportunity,” wrote analysts at research firm Jefferies, which reiterated its Buy rating on Reddit.

“We believe RDDT has multiple opportunities to increase impressions and prices over time, contributing to an impressive advertising revenue growth profile,” they wrote on Tuesday.

Reddit's shares closed 2.6% higher at $81.74 apiece on Tuesday, extending gains 25% to $102 in after-hours trading.

The stock's initial public offering was priced at $34 per share and opened at $47 on March 21 on the New York Stock Exchange.