Reddit forecasts strong revenue as AI tools drive ad sales
Reddit forecast first-quarter revenue above analysts’ estimates on Thursday, as artificial intelligence-powered enhancements to its ad platform help the social media platform draw more marketers.
Shares of the company rose 4% after-hours as Reddit also announced its maiden share repurchase plan of up to $1 billion.
Reddit allows ad placement directly within subreddit discussion threads, driving ad spending on the platform as brands aim to reach highly engaged and niche communities that discuss topics relevant to their products and services.
The company’s active advertiser base rose over 75 per cent in the fourth quarter, helped by new account additions across channels, Chief Operating Officer Jen Wong said on a conference call with analysts.
Reddit’s ad platform uses AI to enhance campaign creation and management, with features including an AI copywriter that generates Reddit-specific ad copy and an image auto-crop tool.
The company said 11 of its top 15 ad verticals grew revenue by 50 per cent or more year-over-year, with retail, pharmaceuticals, financial services and technology leading the way.
Reddit expects first-quarter revenue between $595 million and $605 million, above analysts’ average estimate of $577.2 million, according to data compiled by LSEG.
Its forecast of adjusted earnings before interest, taxes, depreciation and amortization of $210 million to $220 million was above estimates of $202.9 million.
“Expectations were already high coming into the quarter, but the results still surprised by showing how tightly product momentum, advertiser demand, and user engagement are now reinforcing one another,” said Emarketer senior director Jeremy Goldman.
Reddit is ratcheting up competition with by rolling out AI-powered Max campaigns in beta, which automate ad campaigns by adjusting bids to hit target cost-per-result as well as dynamically selecting headlines and creatives.
Fourth-quarter revenue rose 70 per cent to $726 million, beating estimates of $665.4 million. Its earnings per share of $1.24 also exceeded estimates of 94 cents.
Daily active unique visitors rose 19 per cent, to 121.4 million in the quarter ended December 31, while its global average revenue per user increased by 42 per cent.