Reddit's bet on AI is starting to pay off

• Reddit shares surged 25% after it reported a revenue beat and turned a profit for the first time.
• The company saw a 68% revenue increase and a 47% rise in daily active visitors in Q3.

Reddit is reaping the rewards of artificial intelligence.

The social network's shares surged 25% in after-hours trade after the company reported a profit for the first time and revenue that beat expectations.

Reddit's third-quarter revenue soared 68% to $348.4 million from a year ago, comfortably beating analysts' expectations of $312.8 million.

The company reported a profit of 16 cents per share for the third quarter, reversing a loss of 13 cents a year earlier. Analysts had expected a loss of 7 cents per share on average, according to LSEG.

Its daily active unique visitors jumped 47% to 97.2 million in the third quarter ending September 30. Global average revenue per user rose 14% to $3.58.

In the company's earnings call on Tuesday, Reddit CEO Steve Huffman said Reddit's influence has continued to grow, with people seeking out the platform "for answers, advice or community."

Huffman said the company has been using AI to simplify its language translations — first trialing it with French, then Spanish, Portuguese, Italian, and German.

"This quarter, machine translation drove four times more users than last quarter, and based on the success we've seen so far, we plan to expand machine translation to over 30 countries through 2025," Huffman added.

He said Reddit also revamped its popular "Ask Me Anything" product, which increased traffic.

"We refreshed the Ask Me Anything or AMA product, which led to a fivefold increase in the number of AMAs created in the new format," Huffman said.

Reddit's star keeps rising

Reddit, which went public in March, has had a couple of blockbuster quarters on the markets.

In its first quarter as a publicly traded company, it reported revenue of $243 million, up 48% from the same period last year.

And in its second quarter, it recorded $281 million in revenue, a 54% year-over-year increase.

This positive net increase was consistent with its second-quarter results, during which the platform saw a 51% increase in daily active users globally.

Reddit's growth has outpaced other social media platforms. Elon Musk's X reported 1.6% growth in daily active users in 2024's second quarter, per the FT.

The daily active users on all of Meta's platforms combined, which include Facebook, Instagram, and Threads, increased by 7%, according to its second-quarter earnings report.

Reddit expects fourth-quarter revenue to be between $385 million and $400 million. Per LSEG, analysts are expecting an average revenue of $357.9 million.

Reddit's advertising revenue growth underscores a "nascent monetization opportunity," wrote analysts at the research firm Jefferies, which reiterated its Buy rating on Reddit.

"We think RDDT has multiple avenues to drive impressions and pricing higher over time, which contributes to an impressive growth profile for advertising revenue," they wrote on Tuesday.

Reddit's share price closed 2.6% higher at $81.74 a piece on Tuesday and extended gains by 25% to $102 in after-hours trade.

The stock's IPO was priced at $34 a share and opened at $47 on the New York Stock Exchange on March 21.