Reddit (RDDT) has released its first-quarter financial results since its IPO, revealing a 39% year-over-year increase in ad revenue. Additionally, Reddit's second-quarter earnings outlook beat analysts' expectations, indicating the company's continued momentum.
Bernstein Internet Equity Research Analyst Mark Shmulik joins us. morning briefs Discussing his wait-and-see approach to Reddit's future value.
Shmulik details Reddit's deal to license data for generative AI platforms. “The biggest deal is clearly Google (GOOG, GOOGL) producing real human-type data with AI, Gemini results, and whether Google sees real value in it, i.e., who is driving the algorithms the most? I think we'll see if it helps increase the reliability of the response, rather than who cheats best or who best floods the algorithm to give you whatever result you want. See if others join in. Let's look at.”
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This post was written by Nicholas Jacobino
video transcript
Let's go to Reddit. That's because its stock has soared after its revenue soared 48% compared to a year ago and its first earnings release as a publicly traded company reported a 39% jump in advertising revenue alone. The social media platform also provides its current quarter revenue forecast here. It has far exceeded people's expectations. Looking at Reddit, it's only up about 5% since opening. If you look at its max chart, the stock is only up about 11%. I'm here. I'd like to know more about these results, so today it's over $51 per share. I'd like to welcome Mark Schue. He is an Internet Equity Research Analyst at Bernstein. Mark, nice to meet you. So let's just talk about this Purim. There's certainly a lot to like about this report, at least at first glance. You don't seem to understand the reason. Uh, first of all, uh, thanks for having me, and that was an objectively great first uh report, uh, or, um, print it out now, Reddit is now a public company. Well, the sales numbers look great, but revenue growth is significantly higher than expected due to advertising growth. This is what you want to see. Um, engagement growth or user growth is also very strong. Well, in the short term, we really like it. This is a kind of tactical play. I think they have a very easy comparison. Well, what we're starting to see, as management shared on their conference call last night, is that the digital ad market is very strong. As you know, this is one of the highest branded markets in terms of branded ad spend starting in 2022. Well, you've probably seen that reflected elsewhere. Pinch and Snapchat have seen a huge acceleration in advertising growth. And in terms of engagement, a lot of that engagement is actually coming from logged out users. I mean, if you've ever used Google, you've probably seen it. More and more reddit blue links appear. Well, it's good to get these users. Perhaps a slightly lower calorie user. This is the biggest part of their increased engagement. And, you know, as we know, in the long run, those users are just harder to monetize. Yeah, you're probably talking about me, Mark, I mean, I forget my Reddit password from time to time, but don't tell the scammers about all of this anyway. With that in mind, where are the biggest growth opportunities for Reddit right now? So it's not just about re-engaging with some users, as we talked about earlier, but also about monetization. We need more than just a platform, we need advertisers willing to run campaigns. There are other things you need to do to monetize, right? Well, you're right. And, you know, first of all you want to attract advertisers to your platform, so you have to have something to sell. Um, they're building something like a suite of advertising products, some of which are very similar to what we've seen elsewhere, um, and what we've heard about management. Jin talked last night about the possibility of getting into search advertising. There's a lot of video advertising around search behavior on the platform, which is certainly very popular right now on tiktok meta, you know, youtube and so on. That means there are more products they can offer. Besides tables, and ads, they have big AI data like fencing, which they have a contract with Google. There are some other small pieces of data, like the ones they mentioned. What kind of additives do you think are in AI? Also, the user-generated content and, as we discussed earlier, the data that takes place on the platform is really indicative of the realm of human conversation. , what kind of additives do you think could have a long-term impact on this company's bottom line? Yes, that's a good question, and the biggest deal so far. Google is clearly about feeding Gemini's result-producing AI with real, human-like data. Well, I think once Google sees real value in it, we'll see if it helps increase the reliability of the response, who can trick the algorithm, flood the algorithm, It's not about what's best to give them the results they want. See if others will join. I think that's one metric that we're looking at. Will open AI be involved and make a license agreement, will meta with llamas be involved, will humanity be involved? So we'll see how valuable this data is as we watch other major foundational model builders follow suit.
