Reddit reports a loss of $575 million related to the IPO but also strong growth

Reddit reported a quarterly loss of more than $500 million in its first earnings report as a public company on Tuesday, largely due to stock compensation expenses incurred during its initial public offering in March.

But the social media company also reported solid revenue and user growth, underscoring the potential of its digital advertising business as people flock to the site. Last month, Google, Meta and Snap also reported increased ad sales and double-digit revenue growth.

Reddit's revenue was $243 million in the first quarter, up 48% from $163.7 million a year earlier and higher than Wall Street estimates of $214 million, according to data compiled by FactSet. Net loss was $575.1 million, compared to a loss of $60.9 million a year earlier. Stock-based compensation expense totaled $595.5 million, up from $13.2 million a year earlier. Daily active users jumped to 82.7 million, up 37% from a year earlier.

The result sent Reddit shares jumping 17% to $58 in after-hours trading.

Steve Huffman, co-founder and CEO of Reddit, attributed the growth to the company's improvements in product updates and content recommendations for users.

“We've been saying for a long time that everyone has a home on Reddit, but we've gotten a lot better at helping them find it,” he said in an interview. “We have reached an inflection point where our work is working.”

Reddit, which went public after more than 18 years as a private company, has turned into something of a litmus test for technology initial public offerings. The company made a successful debut in what had been a tepid IPO market, with its shares rising 48% on its first day of trading and giving investors reason for optimism. Reddit shares continue to trade above the company's IPO price of $34.

Essentially a message board where users gather in forums to research and discuss interests they have in common, Reddit has spent years trying to diversify its core digital advertising business. It has struck deals with Google and Cision, a public relations services firm, and is in talks with other companies that want to license its large amounts of conversational data, for example to build artificial intelligence technology. It also sought to spur an e-commerce business.

In a letter to shareholders on Tuesday, Huffman said it plans to continue investing in AI technology to improve Reddit's content recommendations so people spend more time on the site. He also plans to invest in search technology, which could help people find information from conversations on the site.

Reddit expects revenue of $240 million to $255 million in the current quarter, above Wall Street expectations.

Users, known as Redditors, had been nervous about the company's IPO, worried that executives would prioritize profits, and vented their frustrations on forums and social media. But some of that angst appears to have eased in recent weeks, said Huffman, who described last month as “relatively calm.”

“We are in a good position with a good foundation to build on,” he said.

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