Reddit (NYSE:RDDT) shares popped more than 17% premarket as the social media platform’s second quarter earnings crushed Wall Street estimates.
Revenue surged 78% year-over-year to $500 million, ahead of estimates of $426.5 million.
Ad revenue increased 84% to $465 while other revenue was up 24% at $35 million.
The company swung to a profit, reporting net income of $89 million compared to a loss of $10 million in the year-ago period.
Per share earnings were $0.45, more than double expectations of $0.19. Adjusted EBITDA of $166.7 million also beat estimates of $129 million.
“Reddit is built for this moment. In a world where connection is increasingly rare, our communities show how valuable human conversation and knowledge really are,” Reddit CEO Steve Huffman said in a statement.
“We’re focused on growing globally, scaling sustainably, and making Reddit the most trusted place on the internet.”
Analysts at Jefferies described the results as “another commanding beat,” which they see underscoring Reddit’s “attractive opportunity to deepen/broaden advertiser spending through performance enhancements, new products and easing usability.”
“Importantly, revenue/EBITDA upside coincided with renewed expansion in users, supporting the bull case that Reddit’s attractive monetization opportunity will be magnified by long-term growth in impressions.”
The analysts wrote that user growth stabilization reinforced their confidence in Reddit. Total daily active users grew 21% year-over-year in Q2, and accelerated throughout the quarter from high teens in April.
“Encouragingly, the Q2 daily active user exit rate was higher than the quarterly average at 110 million and daily active users increased sequentially in both the US and international during July,” they wrote.
“Daily active user growth was supported by a combination of product improvements and a nascent push into user acquisition marketing, which is intended to increase user awareness/engagement.”
Jefferies repeated their ‘Buy’ rating, writing that Reddit’s peer-high growth does not appear reflected in valuation.
“Results support elevated growth in advertising, driven by both monetization upside and an underpenetrated user total addressable market,” they wrote.
“We see continued top-line momentum combining with sustainable 90%+ gross margin and fixed cost leverage to deliver the fastest EBITDA growth in internet, which does not appear fully reflected in valuation, given Reddit currently trades at an approximately 20% discount to the peer-based growth-adjusted multiple.”