Reddit Stock Jumps 35% on Profitability and Rosy Guidance

Shares of Reddit rose 35% on Wednesday, a day after the social media company reported a surprise profit and offered rosy guidance in its third-quarter results.

Reddit's third-quarter revenue rose 68% year over year to $348.4 million, up from the $312.8 million expected by analysts surveyed by LSEG.

The company reported net income of $29.9 million, or 16 cents per share, compared with a net loss of $7.4 million, or a loss of 13 cents per share, in the year-ago quarter. LSEG analysts expected Reddit to post a loss of 7 cents per share in its third quarter.

According to Reddit, fourth-quarter revenue will be between $385 million and $400 million, above the average analyst estimate of $357.9 million.

“It was another strong quarter for Reddit and our communities as we achieved key milestones including new levels of user traffic, revenue growth and profitability,” Reddit CEO Steve Huffman said in a press release.

Reddit's daily active unique users rose 47% year over year to 97.2 million in the third quarter, and analysts at Citi said Wednesday that this user growth underscored the company's “impressive” results. The analysts reiterated their buy rating and increased their price target for the stock from $70 to $120.

Analysts at JP Morgan said they believe the company is benefiting from structural improvements in execution across users, products and monetization. They said they were encouraged by Reddit's strong revenue growth, improving profitability and growing daily active unique users.

“We are committed to continued implementation across the advertiser level, new ad formats/technologies (search ads, conversation ads, shopping ads) and progress toward (management's) goal of a LT Adj. EBITDA margin of 40%,” they wrote analysts in a note on Wednesday.

Bernstein analysts got into the Halloween spirit on Wednesday, comparing Reddit's third-quarter performance to a “real story from Dr. Jekyll and Mr Hyde”. The analysts said the company felt stuck and unable to grow before the IPO, but after the IPO the company is exceeding all expectations.

“Reddit looks like a company that is suddenly an AI winner, growing ad revenue at an unprecedented rate, having a cheat code for user growth in Translation and Google, and hitting years-long profitability goals in a matter of months – this Dr. Jekyll,” the analysts said in a note. “And right now, Dr. Jekyll in charge.”

— CNBC's Michael Bloom and Jonathan Vanian contributed to this report.