Reddit's first post-IPO results are 'mission accomplished,' with international and data-licensing opportunities ahead

By James Rogers

Reddit reported its first quarterly results as a public company after the bell Tuesday

Reddit Inc.'s first quarterly results as a public company sent the company's stock surging on better-than-expected revenue and a narrower-than-expected loss. Analysts say there are international and new data-licensing opportunities ahead for the social-media platform.

"Mission accomplished!" Piper Sandler analyst Thomas Champion wrote in a note released Tuesday. "In its first quarter out of the gates, [Reddit] handily beat expectations across users, revenue growth and margins. In our view, Reddit remains early days in the development of the ads business and we think a large international user opportunity remains untapped." Piper Sandler raised its Reddit (RDDT) price target to $65 from $50 and reiterated its overweight rating.

Reddit's international revenue was $43.2 million, up from $33.1 million in the prior year's quarter, although this was dwarfed by the company's U.S. revenue of $199.8 million, up from $130.6 million. Speaking during the conference call to discuss Reddit's results, CEO Steve Huffman pointed to the company's artificial-intelligence-assisted translation efforts. "I think one of the big unlocks for us in the near to medium term is machine translation," he said. "We're translating our entire corpus that's today mostly in English into other languages and hope that that will help accelerate international growth."

Related: Reddit shares soar on revenue beat, narrower-than-expected loss in first post-IPO results

French is the first language targeted for translation. "It's in testing now, and the results are looking very promising," said Huffman. "And so, if you're a user in France in this test group, you can see all of Reddit, including big blue-chip communities like AskReddit, entirely in French."

"Reddit's [first-quarter] results handily beat expectations as business improved through the quarter," Baird Equity Research analyst Colin Sebastian wrote in a note released Tuesday. "We believe positive trends reflect not only a healthy online ad market, but also further momentum for Reddit's portfolio of ad products and impressive sequential user growth."

Baird Equity Research raised its Reddit price target to $59 from $50. "We maintain a positive bias, but rating is Neutral based on after-hours stock move," Sebastian wrote.

Reddit enjoyed sequential growth of 9.6 million daily active unique users during the first quarter. The company's shares are up 14.1% premarket.

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"We believe Reddit has meaningful runway to expand core advertising products, including incremental opportunities in Search and Video, as well as the longer-term development of user economy," Sebastian said. "Another leg to the growth stool is the expansion of data licensing agreements, which management suggested could include new partners in coming quarters."

Speaking during the company's conference call, Huffman said that the company's "still nascent" data-licensing business continues to grow and evolve. The CEO also pointed to Reddit's deal with Alphabet Inc.'s (GOOGL) (GOOG) Google. The two companies have a longstanding relationship, and the Google deal, which is said to be worth $60 million a year, was deepened in February with a new cloud partnership. "Over time, we will strategically explore data-licensing partnerships as well as other uses for Reddit data internally, which we believe is also valuable in improving the platform and experience for our users and customers," Huffman added.

Related: Reddit poised for AI and user growth, analysts say, as they initiate coverage

"While no new [generative=AI] licensing deals were struck, we viewed the management tone as confident with respect to ultimately aligning on more licensing partnerships," Raymond James analyst Josh Beck wrote in a note released Wednesday, adding that the company's early French-language translation efforts also look encouraging. Raymond James raised its Reddit price target to $65 from $50.

Reddit shares are down 2.1% since the company's IPO in March.

-James Rogers

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05-08-24 0949ET

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