October 30, 2024 — Reddit, widely known as the “front page of the internet,” has reached a significant milestone by posting its first profitable quarter in 20 years. Reporting a Q3 profit of $29.9 million driven by a 68% surge in revenue to $348.4 million, Reddit’s performance has sent its stock soaring over 35% in Wednesday morning trading, signaling increased investor confidence in the company’s evolving business model.
From Forum to Financial Powerhouse
Reddit began in 2005 as a platform for niche communities, or “subreddits,” allowing users to discuss topics ranging from world news to specific hobbies. The platform’s unique appeal and community-driven model have made it a hub for digital culture, with nearly 100 million monthly active users, a 47% rise from last year. CEO Steve Huffman attributes recent growth to Reddit’s international expansion and AI-powered translation tools, which have broadened the platform’s accessibility, drawing new users and advertisers alike. It is known for it’s unique ability to move quality or interesting content to the top of their feeds. It’s a method of filtering news into what is actually true, false and misleading information quickly get down voted and do not appear in the results. Google trends shows that reddit has surpassed Facebook, TikTok and X in daily web search requests.
Strong Financials and Strategic Revenue Streams
Reddit’s Q3 financials underscore the strength of its monetization efforts. The platform’s gross margin of 90% reflects efficient revenue generation through digital advertising and new content licensing deals with Google and OpenAI, allowing Reddit’s user-generated content to fuel AI model training. With EBITDA at $94.15 million—over 50% above projections—Reddit’s diversification in revenue streams has solidified its foundation for sustained profitability.
Will Mutual Funds Start Buying Reddit Shares?
Reddit’s profitability has piqued the interest of mutual funds, which generally wait a year post-IPO to gauge a company’s long-term stability. However, given Reddit’s high gross margin and revenue growth, analysts believe many funds may invest once Reddit demonstrates consistent earnings over the next quarters. Tech- and media-focused funds, in particular, are likely to be among the first to buy, drawn by Reddit’s advertising reach and content licensing potential.
As Reddit shifts from a grassroots platform to a profitable media entity, its performance has made it an investment of interest among financial institutions.
Disclaimer: This article is for informational purposes only and should not be considered investment advice. Please consult a financial advisor or conduct thorough research before making any investment decisions related to Reddit or other companies.
