By Jaspreet Singh
July 30 (Reuters) – Reddit forecast third-quarter revenue above Wall Street estimates on Thursday, signaling its strategy to draw marketers by offering AI-powered advertising tools is paying off.
Shares of the company fell 6% in volatile extended trading after the company reported slowing growth in both second-quarter revenue and its U.S. daily active unique visitors (DAUq).
The company’s ad tools are designed to enhance campaign performance by offering a library of successful ads, generating Reddit-specific ad copy, tracking visitor actions after ad exposure and enabling interest and community-based targeting within subreddit discussions.
Reddit operates in a highly competitive social media market, where bigger rival Meta through its Threads communities hub and new Forum app for Facebook Groups users appears to be directly targeting Reddit’s core community model.
“The company’s advertiser growth in the second quarter was 70% year-over-year. So, we continue to onboard a lot more new advertisers onto Reddit,” COO Jen Wong told Reuters.
She added the growth was particularly strong among mid-market and small- and medium-sized businesses and international advertisers.
Reddit forecast third-quarter revenue of $860 million to $870 million, above LSEG-compiled analysts’ average estimate of $829.1 million. Second-quarter revenue rose 61% to $805 million, beating estimates of $730.4 million.
But the growth in its U.S. DAUq slowed in the second quarter sequentially, even as global DAUq rose 18% from a year earlier to 130.3 million and slightly higher than prior quarter growth.
“Search referrals were choppy in the quarter, and traffic was more volatile later in the quarter, but the bigger picture is unchanged: the commercial business is strong,” co-founder and CEO Steve Huffman said in the shareholders’ letter.
Wong said “SEO headwinds” caused by changes in search algorithms “more than offset” the company’s efforts in terms of user acquisition in the quarter.
Still, product improvements are helping convert lower-engagement visitors from search engines into loyal app users, she said.
Reddit expects quarterly adjusted earnings before interest, taxes, depreciation and amortization of $385 million to $395 million, above estimates of $369 million.
(Reporting by Jaspreet Singh in Bengaluru; Editing by Sriraj Kalluvila)
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