Reddit Inc. shares surged on May 1, 2025, following the company's announcement of impressive first-quarter earnings that exceeded Wall Street expectations. The social media platform reported a remarkable revenue increase of 61% year-over-year, totaling $392.4 million, compared to $243 million from the same period last year. This surge in revenue has fueled optimism among investors, leading to a stock price jump of over 15% in after-hours trading.
CEO Steve Huffman expressed his enthusiasm about Reddit's growth, stating, "Over 400 million people now come to Reddit each week—because when you want real opinions, you turn to real people. Twenty years in, I have never been more excited about Reddit’s future than I am now. We’re growing and building a more valuable platform for community and human perspective." The company also reported a net income of $26.2 million for the quarter, a significant turnaround from the net loss of $575.1 million recorded a year prior, when costs associated with its IPO weighed heavily on its financials.
Analysts had projected adjusted earnings of just 2 cents per share, but Reddit delivered a diluted earnings per share of 13 cents, further solidifying its positive financial outlook. The company's gross margin improved to 90.5%, an increase of 190 basis points from the previous year, showcasing its efficient operations.
In addition to strong financial results, Reddit's daily active uniques (DAUq) rose by 31% year-over-year, reaching 108.1 million users. This figure surpassed analysts' expectations of 107.3 million, demonstrating the platform's growing user engagement. The logged-in DAUq also saw a notable increase, climbing 23% to 48.7 million, while logged-out users surged by 38% to 59.4 million.
The company's growth can be attributed in part to its strategic improvements in site features aimed at converting logged-out users into registered members, which are more valuable to advertisers. Huffman noted that Reddit has benefited from changes in Google search algorithms, which have led to increased user traffic and engagement. He acknowledged, however, that the search environment remains volatile, stating, "The search ecosystem is under heavy construction," and warned that there could be short-term fluctuations in traffic.
Looking ahead, Reddit has provided optimistic guidance for the second quarter of 2025, projecting revenue between $410 million and $430 million. This forecast exceeds Wall Street's expectations of $396 million, further boosting investor confidence. Adjusted EBITDA is expected to range from $110 million to $130 million, indicating continued strong financial performance.
Reddit's operating chief, Jen Wong, addressed the current economic climate during the earnings call, acknowledging the uncertainty but emphasizing that the company is well-positioned to navigate these challenges. "There’s a lot of uncertainty in the market, but it has been mostly business as usual. We’re staying close to our customers to help them through the volatility by sharing insights on consumer trends that inform their strategy based on things that we're seeing on Reddit," Wong explained.
The company’s performance stands in contrast to other players in the digital advertising space, with Meta reporting stronger-than-expected earnings while Snap declined to provide a sales outlook due to macroeconomic uncertainties. Reddit's ability to adapt and thrive in a shifting economic landscape has garnered attention from analysts and investors alike.
Despite the positive outlook, Reddit's stock has faced challenges this year, with shares down 27% compared to a 4.7% loss for the S&P 500. This decline follows an explosive surge of over 300% after its IPO in March 2024, as concerns about its reliance on Google search referrals for user growth have weighed on investor sentiment.
As the digital advertising landscape continues to evolve, Reddit remains committed to enhancing its platform and user experience. The introduction of Reddit Answers, an AI-powered service similar to ChatGPT, has also attracted attention, boasting 1 million weekly active uniques. Huffman remarked, "While people may want to use LLM-powered tools to see annotated sterile answers from AI, Reddit's unique user-created content involving subjective, authentic, messy, multiple viewpoints will help the company stand out." This unique value proposition positions Reddit favorably amid increasing competition in the online advertising space.
In summary, Reddit's strong first-quarter results, combined with a promising outlook for the second quarter, have reinvigorated investor confidence in the company. The social media platform is not only navigating the current economic landscape but is also capitalizing on opportunities to grow its user base and revenue. As Huffman aptly stated, "Ever-shifting macro environments like these create both challenges and opportunities. We’ve grown through challenging times before—people need connection and information just as much in uncertain times." With its robust financial performance and strategic initiatives, Reddit is poised for continued growth in the months ahead.
