Reddit stock surged late Thursday after the social media company reported second-quarter results that topped expectations. User growth for the user-forum platform also beat expectations despite concerns about referrals from Google that have dogged Reddit stock this year.
Reddit said that it earned 45 cents per share for the June-ended quarter, compared with a loss of 6 cents per share a year earlier. That easily beat the earnings of 19 cents per share that analysts polled by FactSet were forecasting. Meanwhile, sales rocketed 78% to $500 million on the quarter, well ahead of the $425.7 million seen by Wall Street analysts.
Reddit also grew its daily user count a better-than-expected 21% year-over-year to 110.4 million.
For the current quarter, Reddit guided for sales of $540 million. Analysts were previously forecasting $473.3 million in sales for the September period.
Reddit stock jumped more than 13% to 182.74 in after-hours trading on the stock market today.
Reddit: Watching User Growth
Analysts were closely watching for indications of Reddit's user growth coming into Thursday's report.
After surging more than 300% from its IPO price to a record 230.41 in February, Reddit stock pulled back significantly this spring.
A big reason for its struggles is the debate about Reddit's reliance on Google search referrals for user growth. Reddit stock tumbled following its fourth-quarter earnings report earlier this year, when it said changes to Google's search algorithm had weighed on user growth. Similar concerns about Google's AI overviews hurting traffic spoiled an initially positive reaction to Reddit's Q1 results in May.
Reddit is taking steps to drive more users directly to its site and app. Those include a "Reddit Answers" feature that relies on AI to directly respond to queries based on previous Reddit user conversations.
In an earnings preview note, Jefferies analyst John Colantuoni reiterated a buy call for Reddit and said third-party web traffic data showed user growth for Reddit had "stabilized" over the past three months after slowing earlier in the year.
Needham analyst Laura Martin also reiterated a buy call for Reddit stock ahead of its report.
"The bear case — that Google Search will no longer send traffic to Reddit — is not playing out," Martin wrote to clients. "AI-driven ad tools, such as Reddit Insights and Conversation Summaries, suggest Reddit is already monetizing Gen AI."
Meta Results Push Reddit Stock Higher
Prior to posting its results, Reddit stock rallied 7.5% in regular trading. Reddit stock's gain came after its much-larger rival Meta Platforms posted second-quarter revenue well above estimates. Investors are taking that as a positive signal for the smaller social media players to compete with Meta's Facebook and Instagram for digital advertising dollars.
Reddit's strong results seem to further bolster confidence about digital advertising. Shares of Snapchat parent Snap are up a fraction after-hours after gaining 1.2% in regular trading. Pinterest stock was ahead slightly as well after adding just under 1% in regular Thursday trades. Both companies will report second-quarter results next week.
Reddit stock is down about 2% overall this year and about 30% below its record high reached Feb. 10.
But the stock has been reclaiming lost ground. Shares rallied more than 30% in June and are ahead about 5% this month, including Thursday's gains.
Coming into its Q2 report, Reddit stock has an IBD Composite Rating of 81 out of a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
