Reddit forecasts strong revenue as AI tools drive ad sales

Reddit on Thursday forecast first-quarter revenue above analysts’ estimates; AI-powered improvements to the advertising platform have helped the social media platform attract more marketers.

The company’s shares rose 4% after Reddit announced its first share buyback plan worth up to $1 billion.

Reddit allows ads to be placed directly within subreddit discussion threads, and brands are increasing their ad spend on the platform as they aim to reach highly engaged and niche communities discussing topics related to their products and services.

The company’s active advertiser base grew more than 75% in the fourth quarter, helped by new cross-channel account additions, Chief Operating Officer Jen Wong said on a conference call with analysts.

Reddit’s advertising platform uses artificial intelligence to improve campaign creation and management; It offers features such as an artificial intelligence copywriter that creates Reddit-specific ad copy and an automatic image cropping tool.

The company said 11 of the 15 largest advertising industries increased revenue by 50% or more from the previous year, led by retail, pharmaceuticals, financial services and technology.

Reddit expects revenue of $595 million to $605 million in the first quarter, above analysts’ average estimate of $577.2 million, according to data compiled by LSEG.

The forecast for adjusted earnings before interest, tax, depreciation and amortization was $210 million to $220 million, above estimates of $202.9 million.

“Expectations were already high heading into the quarter, but the results remain surprising, showing how tightly product momentum, advertiser demand and user engagement now support each other,” said Jeremy Goldman, senior director at Emarketer.

Reddit is stepping up the competition with Meta by launching AI-powered Maximum campaigns in beta, which automate ad campaigns by adjusting bids to hit the target cost per result and dynamically selecting headlines and creatives.

Fourth-quarter revenue rose 70% to $726 million, beating estimates of $665.4 million. Its earnings per share of $1.24 also beat estimates of 94 cents.

The number of daily active unique visitors increased by 19% to 121.4 million in the quarter ending December 31, while global average revenue per user increased by 42%.