Reddit stock pops 18% after showing strong advertising and user growth

Reddit's shares jumped over 18% on Friday as the social media giant reported robust third-quarter results that exceeded forecasts, showcasing significant growth in advertising revenue. The company's revenue reached $585 million, a remarkable 68% increase compared to the same quarter last year, and it surpassed analysts' expectations of $546 million. Earnings per share came in at 80 cents, well above the anticipated 51 cents. Furthermore, Reddit offered a promising sales outlook for the fourth quarter, projecting revenues between $655 million and $665 million, exceeding Wall Street's estimate of $638 million. Morgan Stanley analyst Brian Nowak noted that these results reflect Reddit's ongoing success in its advertising and platform initiatives. He highlighted a considerable growth opportunity, with active advertisers increasing by 75% year-over-year in Q3. Additionally, nine of the top 15 advertiser categories on the platform saw growth exceeding 50%. Investments in automation are paying off for Reddit, enhancing returns on advertising spend. The platform experienced a 19% rise in daily active users, reaching 116 million and outpacing Wall Street's projection of 114 million. This growth has been fueled by attracting new users through Google and converting them into active accounts, which are more profitable for the company. Amid concerns regarding the potential impact of AI chat applications like ChatGPT on user acquisition, CEO Steve Huffman expressed optimism about future collaborations, noting that these tools are not currently significant traffic drivers. He remains focused on exploring opportunities with partners in the AI space. In terms of logged-in users, the number grew by 14% globally, totaling 50.2 million. Meanwhile, Reddit's additional revenue streams, which include partnerships for data licensing with companies like Google and OpenAI, increased by 7% year-over-year, reaching $36 million.