Reddit on Tuesday posted a quarterly loss of more than $500 million in its first earnings report as a public company, largely due to stock-based compensation expenses incurred during its initial public offering in March.
But the social media company also posted strong revenue and user growth, underscoring the potential of its digital advertising business as people flock to the site. Last month, Google, Meta and Break also reported an increase in advertising sales and double-digit revenue growth.
Reddit's revenue was $243 million in the first quarter, up 48 percent from $163.7 million a year earlier and above Wall Street estimates of $214 million, according to data compiled by FactSet. The net loss was $575.1 million, compared to a loss of $60.9 million a year earlier. Stock-based compensation expenses totaled $595.5 million, up from $13.2 million a year earlier. Daily active users increased to 82.7 million, up 37 percent from a year earlier.
The result sent Reddit shares soaring 17 percent to $58 in after-hours trading.
Steve Huffman, co-founder and CEO of Reddit, attributed the growth to the company's improvements in product updates and content recommendations to users.
“We've been saying for a long time that everyone has a home on Reddit, but we've gotten a lot better at helping them find it,” he said in an interview. “We've reached a tipping point where our work is working.”
Reddit, which went public after more than 18 years as a private company, has become something of a litmus test for technology initial public offerings. The company successfully debuted in what had been a lukewarm IPO market, with its shares rising 48 percent on the first day of trading and giving investors reason for optimism. Reddit shares continue to trade above the company's IPO price of $34.
Reddit, essentially a message board where users gather in forums to research and discuss common interests, has spent years trying to diversify its core digital advertising business. It has closed deals with Google and Cision, a public relations services company, and is in talks with other companies that want to license its large amounts of conversation data, for example to develop artificial intelligence technology. He has also tried to launch an e-commerce business.
In a letter to shareholders on Tuesday, Huffman said he hoped to continue investing in artificial intelligence technology to improve Reddit's content recommendations so people spend more time on the site. He also plans to invest in search technology, which could help people find information from conversations that took place on the site.
Reddit projected between $240 million and $255 million in revenue in the current quarter, above Wall Street expectations.
Users, known as Redditors, had been nervous about the company's IPO, fearing that executives would prioritize profits, and had expressed their frustrations on message boards and social media. But some of that angst appears to have eased in recent weeks, said Huffman, who described the past month as “relatively calm.”
“We're in a good place with a good foundation to build on,” he said.
