Reddit Revenue Climbs 53 Percent to $895 Million but Shares Fall 18 Percent on a User Miss

Reddit reported third quarter revenue of $895 million, up 53 percent from a year earlier, and still lost ground with investors after the closing bell. The company said net income reached $283 million, equal to 32 percent of revenue, and diluted earnings were $1.40 a share. Both profit figures rose by more than 70 percent from a year earlier, according to the official results release published through Business Wire.

The earnings number cleared the bar analysts had set. Earnings of $1.40 a share beat a consensus estimate of $1.31 to $1.33 a share, and revenue of $895 million came in ahead of estimates near $875 million to $886 million, Shacknews reported. Advertising supplied most of the money. Ad revenue rose 54 percent to $847 million, other revenue rose 35 percent to $48 million, and gross margin was 91.5 percent. Adjusted EBITDA was $402 million.

The user number that drove the share move

The problem for the stock was the audience count. Daily active uniques rose 12 percent to 130.3 million and weekly active uniques rose 16 percent to 515.2 million, but the daily figure missed the 134 million that analysts surveyed by FactSet had expected, Barron's reported. In the United States, daily active uniques fell 2 percent to 50.7 million. Shares fell 18 percent in after hours trading.

That split explains the market reaction. The quarter showed a company making much more money from the users it has, through advertising, while the growth in the daily audience came in slower than Wall Street had priced in. A fall in the home market count added to the concern, because the United States figure moved down even as the global daily and weekly counts moved up.

What management said and what comes next

Chief executive and founder Steve Huffman pointed to the character of the platform in the release. "Our business is growing because the Reddit experience captures the human experience in a way that no other platform can replicate," he said. He also noted a longer run milestone: "Surpassing $3B of revenue over the last 12 months shows Reddit's strength as a destination and the differentiated value of our platform."

For the fourth quarter, Reddit forecast revenue of $1.00 billion to $1.03 billion. That guide puts the company at or above the billion dollar mark for quarterly sales for the first time on its own forecast, and it will be judged against the same question that hurt the stock on Thursday: whether daily user growth can keep pace with the advertising business built on top of it.