Reddit Shares Surge 16% Amid Strong AI Ad Growth, Revenue Outlook

Reddit shares surged 16% in premarket trading on Friday following an optimistic quarterly revenue forecast that highlighted the growing returns from the social media company’s AI-driven advertising tools.

The company’s AI-optimized ad platform enables advertisers to place targeted ads directly within relevant discussion threads across its interest-based communities known as subreddits. These strong results suggest that Reddit’s strategy is yielding positive outcomes as it faces off against larger ad competitors like Meta’s Instagram and Facebook.

Chief Operating Officer Jen Wong confirmed to Reuters on Thursday that the company is “still hiring and adding to our talent base,” which sets Reddit apart from other tech giants such as Meta, Snap, and Pinterest, all of whom have recently cut thousands of jobs to streamline operations and refocus spending on artificial intelligence.

Reddit’s stock has experienced a tumultuous year, declining roughly 36% year-to-date, while Snap and Pinterest have dropped about 24% each. However, the company’s daily active unique visitors increased by 17%, reaching 126.8 million in the quarter, and its global average revenue per user rose by 44%.

The ad platform leverages AI to enhance campaign creation and management through features like an AI copywriter for Reddit-specific ads and an automatic creative asset cropper that optimizes images for various ad placements. The company’s vast content library has also become a valuable asset as AI companies seek data to train their large language models, the technology behind chatbots such as ChatGPT.

With a 12-month forward price-to-earnings ratio of 30.40, Reddit is trading at a premium compared to Snap (9.93), Pinterest (10.27), and Meta (19.05).