Social media firm Reddit posted a loss of more than a half-billion dollars for its first quarterly earnings report post-IPO.
Net loss for first quarter 2024 was $575.1 million, with Reddit blaming the loss on “IPO expenses.” The company launched its IPO in March, and started trading on the New York Stock Exchange from March 21 under ticker symbol RDDT. This was the tech company’s first earnings report as a public firm. The $575.1 million loss was up from the $60.9 million loss registered in the same period last year.
“Stock-based compensation expense and related taxes were $595.5 million, as compared to $13.2 million in the prior year, driven by IPO charges.” Stock-based compensation refers to paying a company’s employees, executives, and directors with equity in the firm.
Despite the multimillion-dollar loss, Reddit announced strong growth in the first quarter. Revenue was up 48 percent, at $243 million, while ad revenue jumped 39 percent, to $222.7 million. The company reported “record user traffic,” with daily active uniques (DAUq) rising 37 percent, to 82.7 million.
Out of the 82.7 million, 41.5 million were users from the United States, with the remaining 41.2 million being international users.
On the basis of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), Reddit reported $10 million in profit, an improvement from the $50.2 million loss last year. This was the “first profitable first quarter” Reddit has seen on an adjusted EBITDA basis.
“It was a strong start to the year and a milestone quarter for Reddit and our communities as we debuted as a public company,” said Steve Huffman, co-founder and CEO of Reddit. “We see this as the beginning of a new chapter as we work towards building the next generation of Reddit.”
For the second quarter, the company is expecting revenues in the range of $240–255 million and an adjusted EBITDA between $0.00 and $15 million.
Shares of the company jumped on May 7. Reddit stock ended the normal trading day on May 7 at $49.40. During after-hours trading on Tuesday, shares rose by over 14 percent, to close at $56.66. At the IPO, shares were offered at $34.
Reddit also announced that Sarah Farrell, co-founder and managing partner of Waygrove Partnership, has joined the company’s board of directors. She has been serving as a board observer since 2021. With Ms. Farrell’s addition, Reddit now has eight members on its Board.
“Sarah’s expertise in finance and investing has been invaluable as we’ve made the transition to a public company … This appointment is a testament to Sarah’s contributions, and I look forward to her continued impact on Reddit’s mission,” said Reddit CEO Steve Huffman.
Data Licensing
During a May 7 earnings call, Jen Wong, chief operating officer at Reddit, shared an update on the company’s data-licensing business.Reddit basically provides artificial intelligence (AI) companies with data to train their AI models, collecting fees in exchange.
“Our data-licensing business continues to grow and evolve as the market is still nascent. In the first quarter, we signed licensing agreements with various companies in the social listening space and with Google as we previously announced. The financial impact of the signed partnerships are reflected in our first-quarter financials as other revenue and in our revenue guide for the second quarter,” Ms. Wong said.
“Over time, we will strategically explore data licensing partnerships, as well as other uses for Reddit data internally, which we believe is also valuable in improving the platform and experience for our users and customers.”
In a filing with the U.S. Securities and Exchange Commission (SEC), Reddit revealed that its data-licensing agreements signed in January 2024 have a contract value of $203.0 million and terms ranging from two to three years.
The company is expecting at least $66.4 million of this revenue to be recognized this year, with the remaining thereafter.
Reddit’s value as an AI training data source comes from the fact that it is one of the largest open archives on the internet where human-generated conversations and experiences are constantly updated.
Meanwhile, the U.S. Federal Trade Commission (FTC) is looking into Reddit’s data sale practices. In a March 15 SEC filing, Reddit said it received a letter from the FTC a day earlier stating that its staff was conducting an inquiry “focused on our sale, licensing, or sharing of user-generated content with third parties to train AI models.”
“Given the novel nature of these technologies and commercial arrangements, we are not surprised that the FTC has expressed interest in this area. We do not believe that we have engaged in any unfair or deceptive trade practice,” Reddit stated.
However, the company noted that regulatory engagements can be “lengthy and unpredictable,” leading to the firm having to incur “substantial costs” and potentially suffering from “reputational harm or fines.”
Reddit banned the pro-Trump group “The Donald” in 2020. The community then set up an independent forum outside the platform.
