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Social media firm Reddit’s shares were down 4% in aftermarket despite an all around beat on earnings and revenue in its second quarter results. Analysts ascribed the drop to slowing user revenue growth, with investors likely concerned about Reddit’s inability to monetize its users despite a 51% annual user growth in Q2. The 51% user growth translated into a weak 2% average revenue per user (ARPU) growth for Reddit, and it dealt the shares a hefty blow in after market trading even though the firm guided third quarter revenue above analyst estimates.
Reddit Guides Q3 Revenue To Range Between $290 Million To $310 Million For Small Sequential Growth
Reddit’s second quarter earnings were its second publicly released results since its IPO earlier this year. During the quarter, it posted $281 million in revenue, which marked a 54% annual revenue growth, and narrowed down its loss to $10 million from the year ago quarter’s figures of $41.1 million. Reddit’s advertisement revenue, like its larger peer, Facebook’s parent Meta, also grew during the quarter. It sat at $253 million during the quarter and marked a 41% annual growth.
Reddit CEO Steve Huffman shared during the call that his firm plans to allow consumers to earn money on the platform later this year. He outlined that “we’re working towards enabling monetization within the developer platform to empower our users to create and earn money on the platform this year,” with more details available for this feature in the “coming quarters.”
Another key announcement from Huffman revealed that not only do “users run over a billion search queries a month on Reddit today,” but Reddit aims to boost its search experience by “testing new search result pages powered by AI to summarize and recommend content, helping users dive deeper” into Reddit’s content.
When asked about how he will protect Reddit’s unique culture while also trying to make money similarly to the way YouTube and Twitch do, Huffman shared that in his experience, adding new ways of using Reddit did not cannibalize the existing platform.
This has led him to conclude that “the existing altruistic, free version of Reddit will continue to exist and grow and thrive just the way it has.” However, allowing monetization will “unlock the door for new use cases, new types of subreddits that can be built, that may have exclusive content or private areas, things of that nature.”
He later added that Reddit’s goal this year is to hope for more interactive applications on the platform, such as “scoreboard, stock tickers and Wall Street bets,” with one milestone being surprising applications and use cases generated by users. Reddit’s second milestone is to “connect the dots on monetization.” This involves “getting an end-to-end prototype where a user can basically buy something through a developer platform app written by another user.”
