Reddit stock gained Friday after surging by as much as 18% late Thursday after the social media company reported first-quarter earnings and sales easily surpassed expectations. But the company's gains faded to more modest levels after Reddit's leaders warned user growth could have some "bumps" in the coming months.
Reddit said that it earned 13 cents per share on sales of $392.4 million for the March-ended quarter. Analysts projected the San Francisco-based company would post earnings of 2 cents per share on sales of $370 million, according to FactSet. Reddit swung to the profit from a loss of $8.19 per share in Q1 2024, a period that included costs from the company's IPO. Sales increased 61% year-over-year, compared to 72% sales growth in Q4 and 68% growth in Q3.
Total daily users for Reddit reached 108.1 million, growing a stronger-than-forecasted 31% year-over-year.
Meanwhile, Reddit said it expects $420 million in sales for the current June-ending quarter, based on the midpoint of the company's range. Analysts were previously projecting $392 million in Q2 sales for Reddit.
The guidance could help ease fears from investors that tariffs imposed by President Donald Trump in April are weighing on advertising spending. Facebook parent Meta Platforms provided stronger-than-expected Q2 sales guidance on Wednesday. Snapchat parent Snap, however, declined to provide a sales outlook when it reported quarterly results tuesday.
"Ever-shifting macro environments like these create both challenges and opportunities," Reddit Chief Executive Steve Huffman wrote in a shareholder letter. "We've grown through challenging times before — people need connection and information just as much in uncertain times, and we're well-positioned to meet this moment."
On the stock market today, Reddit stock is up more than 4% at 124.50 in premarket trading.
What Reddit Stock's Gains Eased
New Street Research analyst Dan Salmon said Reddit's commentary on its earnings call Thursday blunted some of the enthusiasm to the report.
"Management revealed on the earnings call that (second quarter) to date DAUq (daily active unique users) growth has decelerated to high teens growth from 31% in Q1," Salmon told clients late Wednesday. "The deceleration is being driven by a higher rate of testing on Google Search as it rolls out AI Overviews across different geographies, and Reddit can see the disruption in those markets. The tests are changing on a daily basis, and so the DAUq trend is very unpredictable right now. Search traffic tends to be strongest in the U.S., and it does includes some logged out users."
It is a familiar concern. Debate about Reddit's reliance on Google search referrals for user growth sank the stock following its fourth-quarter earnings report earlier this year. Reddit is taking steps to drive more users directly to its site and app. That includes a "Reddit Answers" feature that relies on AI to directly respond to queries based on previous Reddit user conversations.
But Huffman said "Reddit" remains the sixth most popular search term on Google.
"We have had a long and symbiotic relationship with Google," Huffman told analysts. "So in summary, expect some bumps and expect us to continue to improve the product and lay the foundation for more consistency in the back half of the year and beyond. And our opportunity remains huge."
Piper Sandler analyst Thomas Champion reiterated a positive overweight call for Reddit stock following the "impressive quarter." But, he added, that "user growth friction" offset some of the excitement for the results.
Reddit Stock Down 27% This Year
Prior to earnings, Reddit stock gained 1.9% in regular Thursday trading. Shares have lost 27% this compared to a 4.7% loss for the S&P 500. Reddit's stock slump is a cooldown after the social media company's shares surged more than 300% following its March 2024 IPO.
Coming into the report, Reddit stock had an IBD Composite Rating of 68 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.
