(Bloomberg) -- Reddit Inc. said it expects steady revenue growth from new data licensing partnerships and advertising technology, charting its path forward as a newly public company.
Current-quarter sales will be $290 million to $310 million, Reddit said Tuesday in a statement. Analysts had forecast $281.8 million, according the average of estimates compiled by Bloomberg.
After initially rising after the report, Reddit shares dropped 7.2% in late trading. They have gained 60% since their March initial public offering at $34. But consistent growth could be difficult in a crowded advertising market, Daniel Konstantinovic, an analyst at Emarketer, said in a note after the earnings release.
“It’s been smooth enough sailing for Reddit so far in its short time as a public company, but its long-term challenge is convincing brands that it’s a safe, stable, and high-value platform to advertise on,” Konstantinovic said. “Reddit’s revenues still pale in comparison to competitors like Pinterest or Snap,” and the company is still struggling to grow its average revenue per user, he added.
The social media platform reported quarterly revenue of $281.2 million for the three months ended June 30, beating analysts’ estimates of $253.7 million.
Reddit was founded in 2005 but didn’t start investing heavily in its advertising business until 2018. Since then, the social media platform has added a variety of new advertising features, including shopping and video ads. Last month, Reddit announced new content partnerships with the NFL, NBA and other major sports leagues to bring more premium video content to the site, which in turn could attract video advertisers. Reddit made $804 million in sales last year, 98% of which came from advertising.
Reddit said that its acquisition of Memorable AI, a startup that uses generative artificial intelligence to help marketers create more effective ads, cost $19.9 million, including $17.1 million in cash.
“We have a roadmap which is very focused on delivering performance to our advertisers,” said Reddit Chief Operating Officer Jennifer Wong in an interview after results. “When we deliver more performance to our advertisers, they’re able to do more with us and spend more with us.”
That dependence on advertising has also pushed the company to try and diversify its business. Reddit expects to bring in more than $60 million this year by licensing data to AI companies, including Alphabet Inc.’s Google and OpenAI. The social media platform signed a pact with OpenAI in May that allows Reddit results to appear in ChatGPT, the company’s popular chatbot. So far, Reddit has signed data licensing agreements worth $203 million over the next two to three years.
“For folks who are building AI models or the next generation of search, Reddit has the best answers, information and conversation for training,” Wong said. “We are in discussions with everybody who wants to build in this area about access to our data,” she added.
Chief Executive Officer Steve Huffman told investors the company plans to add new ways for users to make money on the site later this year, such as new types of forums that are private or have exclusive content. Reddit will also start testing new search pages that summarize and recommend content across the site using AI, said Huffman.
The more people use Reddit, the more valuable that data will be. Reddit averaged 91.2 million daily active unique visitors in the quarter, up 51% from the same time last year. Analysts had expected 84.7 million.
The new business lines may help the company on its path to profitability almost two decades since its founding. Reddit reported a net loss of $10.1 million in the second quarter, compared with a loss of $41.1 million one year earlier. Earnings before interest, taxes, depreciation and amortization were $39.5 million compared with a loss of $35.4 million the prior year.
Reddit executives warned investors that there was a “lot of caution” from advertisers heading into the third quarter, as the US presidential election looms. While Reddit isn’t a big player in political ads, Wong said the service did see some advertisers pause around the UK election and the attempted assassination in July at the rally for former President Donald Trump.
(Adds quotes from Reddit CEO Huffman)
©2024 Bloomberg L.P.
