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Thursday, May 23, 2024

Reddit Reports $575 Million Loss Due to I.P.O. Expenses, Yet Shows Robust Growth

Reddit, in its first earnings report since going public, posted a quarterly loss of over $500 million. This loss was primarily attributed to expenses related to stock-based compensation during its initial public offering in March. However, despite the significant loss, the social media platform demonstrated strong revenue and user growth, highlighting the potential of its digital advertising business.

The company’s revenue for the first quarter was $243 million, marking a 48 percent increase from $163.7 million the previous year. This revenue surpassed Wall Street estimates of $214 million. Conversely, Reddit reported a net loss of $575.1 million, a stark contrast to the $60.9 million loss recorded a year earlier. The surge in losses was mainly driven by stock-based compensation expenses totaling $595.5 million, compared to $13.2 million in the previous year. Despite the loss, daily active users soared to 82.7 million, reflecting a 37 percent increase from the previous year.

Following the earnings report, Reddit’s shares surged by 17 percent to $58 in after-hours trading.

Steve Huffman, Reddit’s co-founder and chief executive, credited the company’s growth to improvements in product updates and content recommendations for users. He emphasized Reddit’s commitment to ensuring that every user finds a community tailored to their interests, describing this as an “inflection point” where Reddit’s efforts are yielding positive results.

As a company that transitioned from being privately held to a publicly traded entity after more than 18 years, Reddit has become a barometer for technology initial public offerings. Its successful debut in a subdued IPO market, with shares soaring by 48 percent on the first day of trading, has instilled optimism among investors. Reddit’s shares continue to trade above its IPO price of $34.

Primarily a platform for users to gather and discuss common interests, Reddit has been diversifying its main business of digital advertising. It has inked deals with tech giants like Google and public relations services company Cision. Additionally, Reddit is exploring partnerships with other firms interested in leveraging its extensive repository of conversation data for purposes such as developing artificial intelligence technology. The platform has also ventured into e-commerce initiatives.

In a shareholder letter, Mr. Huffman expressed plans to further invest in artificial intelligence technology to enhance content recommendations and user engagement on Reddit. He also outlined intentions to invest in search technology to facilitate easier access to information across the platform.

For the current quarter, Reddit projected revenue between $240 million to $255 million, surpassing Wall Street’s expectations.

Redditors had initially expressed concerns about the company going public, fearing that profit-driven decisions by executives might compromise the user experience. However, according to Mr. Huffman, some of these concerns have subsided in recent weeks, describing the past month as relatively quiet. He expressed confidence in Reddit’s current position and its potential for future growth, emphasizing the solid foundation laid for further development.

David Faber
David Faber
I am a Business Journalist of The National Era
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