Reddit's shares were up more than 40% on Wednesday after it reported robust growth in revenue and daily active users, with the latter surging to nearly 100 million during the third quarter.
Reddit Inc. surprised investors by turning a quarterly profit - a first for the social-media platform since becoming a public company earlier this year.
Reddit's quarterly profit is its first on a GAAP basis since its initial public offering in March. The company reported net income of $29.9 million, or 16 cents a share, to swing from a loss of $7.4 million, or 13 cents a share, in the year-ago quarter. Analysts surveyed by FactSet were forecasting a loss of 7 cents a share.
The quarter represented "really nice progress for us," Reddit Chief Financial Officer Drew Vollero told MarketWatch. Vollero cited the company's growth in daily active users, revenue and gross margin as drivers of Reddit's profitability.
"It was a strong quarter across the board," he said. "We can use the word milestone, for sure."
Reddit's third-quarter revenue rose 68% to $348.4 million, from $207.5 million a year ago, beating the FactSet consensus for $314 million.
Daily active users rose to 97.2 million people, up from 66 million in the previous year's quarter and slightly below the FactSet consensus for 97.89 million users.
Reddit's gross margin was 90.1%, an improvement of 280 basis points from the prior year.
"We really do have a differentiated model," Vollero told MarketWatch. "We can become very profitable, very quickly."
The CFO noted that Reddit's platform mostly carries text, as opposed to video, and also isn't burdened by high payments to creators, unlike other social-media platforms. Vollero also pointed to Reddit's capital expenditure, which was $1.4 million during the third quarter and less than 1% of the company's revenue. Reddit, he explained, harnesses cloud-service providers for its platform.
"We have a differentiated platform that's both brand and performance advertising," Vollero said. Reddit's advertising revenue during the quarter totaled $315.1 million, a year-over-year increase of 56%.
For the fourth quarter, Reddit expects revenue of $385 million to $400 million - above the FactSet consensus of $360 million - and adjusted earnings before interest, taxes, depreciation and amortization of $110 million to $125 million. During the third quarter, Reddit's adjusted Ebitda was $94.1 million, compared with a loss of $6.9 million in the same period last year. The company also generated positive free cash flow of $70.3 million.