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Investing.com -- Shares of Reddit Inc (NYSE:RDDT) rallied around 14% in premarket trading Friday after the company posted stronger-than-expected second-quarter results and issued bullish guidance for the current quarter.
For the quarter ended June 30, Reddit reported diluted earnings per share of $0.45, blowing past analysts’ consensus estimate of $0.19. Revenue reached $500 million, a 78% increase from the prior year and well above the $426 million projected on Wall Street.
Advertising remained the company’s dominant revenue stream, rising 84% year-over-year to $465 million and accounting for more than 93% of total sales. Revenue from data licensing and other categories grew 24% to $35 million, aided by continued AI-training partnerships that have become an emerging growth driver.
User growth remained steady, with Daily Active Uniques (DAUq) rising 21% from a year ago to 110.4 million, slightly ahead of the 108.1 million reported in the first quarter. Gross margin expanded to 90.8%, while adjusted EBITDA grew to $167 million, producing a margin of 33%, up from 14% a year ago.
“Reddit is built for this moment,” said CEO Steve Huffman in the company’s shareholder letter. “We’re focused on growing globally, scaling sustainably, and making Reddit the most trusted place on the internet.”
Reddit’s guidance for the third quarter further lifted investor confidence, with projected revenue in the range of $535 million to $545 million, compared to a $473.1 million analyst consensus.
The company also expects adjusted EBITDA of $185 million to $195 million, marking continued profitability improvement in a fiercely competitive ad market led by Meta (NASDAQ:META) and Snap.
Bank of America analysts described it as an "exceptional quarter" for Reddit, but cautioned that many of the positives are already factored into the stock price.
"We reiterate Neutral given: 1) premium valuation, 2) limited scale of logged in DAUs, with growth decelerating, 3) likely traffic volatility around Google (NASDAQ:GOOGL) AI changes."
Separately, Morgan Stanley (NYSE:MS) analysts raised their estimates and price target on Reddit to $230 from $170 "as improvements in ad onboarding, new ad formats and a scaling salesforce highlight still long runway for growth."
(Additional reporting by Vahid Karaahmetovic.)